ITEM
1. BUSINESS
Overview
NeuBase Therapeutics, Inc. (the “Company”,
“we”, “us” and “our”) is a biotechnology company focused on developing next generation therapies
to treat rare genetic diseases and cancers caused by mutant genes. Given that perhaps every human disease has a genetic component,
we believe that our differentiated platform technology has the potential for broad impact.
Mutated proteins resulting from errors in deoxyribonucleic
acid (“DNA”) sequences cause many rare genetic diseases and cancer. DNA in each cell of the body is transcribed into
pre-RNA, which is then processed (spliced) into mRNA which is exported into the cytoplasm of the cell and translated into protein.
This is termed the “central dogma” of biology. Therefore, when errors in a DNA sequence occur, they are propagated
to RNAs and can become a damaging protein.
The type of therapies that we are developing are
termed antisense oligonucleotide therapies (“ASOs”). ASOs are short single strands of nucleic acids (traditionally
thought of as single stranded ribonucleic acid (“RNA”) molecules) which will bind to defective RNA targets in cells
and inhibit their ability to be translated into defective proteins.
We believe we are a leader in the discovery and development
of the class of RNA-targeted ASO drugs called peptide nucleic acids (“PNAs”). Our proprietary gamma Peptide-nucleic
acid AnTisense OLigonucleotide (“PATrOL™”) platform has the potential to provide a more efficient discovery
of drug product candidates than traditional methods, potentially transforming the treatment paradigm for people affected by rare
genetic diseases and cancer.
The PATrOL™ platform allows for a more efficient
discovery of drug product candidates because of manufacturing consistency and because we are not constrained by folded regions
of the target RNA molecule (secondary structures). The peptide backbone of our ASOs is rigid, and once linked together to form
a series of backbone subunits, forms a single pre-organized structure. At a more detailed level, each subunit of the peptide backbone
has only a single chiral center – a point in the chemical structure where the conformation of the backbone could fluctuate
– and this chiral center is locked into one conformation and thus pre-organized to form only a single conformation or stereoisomer.
A stereoisomer is a term used in the ASO therapeutics field to mean a string of backbone subunits (usually sugars or modified
sugars) with nuclear bases attached that are linked together into a specific sequence that matches (complements) the target sequence,
but because of the nature of the backbone subunits used, the drug assumes various conformations often with varying affinity for
the target sequence. These stereoisomers often require a manufacturing step to purify the heterogeneous mixture of conformations
into a more homogenous mixture or even a single conformation of the drug in order to obtain the hoped-for therapeutic effect.
Our PNAs assume only a single conformation with any constellation of nuclear bases added to the backbone or any oligomer length.
This backbone also has a neutral charge, as opposed to the negatively charged backbones of DNA and RNA. This neutral charge allows
our ASO to open up RNAs which are folded upon themselves and bind to their target sequence. This potentially accelerates identification
of drug candidates which have the desired activity.
In addition to the backbone conformational purity
that allows for a more efficient discovery of drug product candidates, we have a kit of proprietary bi-facial or bi-specific nucleotides
(traditional nucleotides only have a single binding face and thus are restricted to only binding single-stranded RNA targets),
which can be used in various combinations to access RNA secondary structures (double-stranded RNA targets which are folded upon
themselves) such as hairpins. This allows us to access regions of the target transcript that may be unique in secondary structure
to allow enhanced selectivity for the target (mutant) RNA vs. the normal RNA. Enhanced selectivity for mutant RNAs vs. normal
RNAs is critical as normal RNAs are generally required for effective functioning of the cell. These bi-specific nucleotides can
potentially also target genomic loci (specific, fixed position on a chromosome where a particular gene or genetic marker is located)
and microRNAs (small non-coding RNA molecule) in their double stranded form.
In addition to the backbone and modified nuclear
bases, the platform toolkit includes linker technology which, when added to both ends of the PNAs, allow cooperative binding between
individual drug molecules once they are engaged with the target RNA to form longer and more tightly bound drugs.
The final component of the platform is a chemical
moiety, which is used to decorate the peptide backbone in a proprietary manner and allows the PNAs to penetrate cell membranes
and distribute throughout the body when administered systemically.
This toolkit of components forms the PATrOL™
platform and allows us to manufacture genome and transcript-specific PNAs for screening against targets of interest.
We are currently focused on therapeutic areas in
which we believe our drug candidates will provide the greatest benefit with a significant market opportunity and intend to utilize
our technology to build out a pipeline of custom designed therapeutics for additional high-value disease targets. We are developing
several preclinical programs using our PATrOL™ platform, including: NT0100, targeted at Huntington’s Disease (“HD”),
a repeat expansion disorder; and NT0200, targeted at type 1 myotonic dystrophy (“DM1”). Preclinical studies are being
conducted to evaluate both the PATrOL™ platform technology broadly, as well as our program candidates in the areas of pharmacokinetics
and pharmacodynamics, and we expect to report the results from those studies beginning in the first calendar quarter of 2020 and
in the second calendar quarter of 2020. In addition, we plan to continue developing our emerging pipeline of other assets that
target primary and secondary RNA structure and genomic DNA, which may afford us a unique market advantage across a variety of
rare diseases and oncology targets.
Using our PATrOL™ platform, we believe we can
create ASOs that have distinct potential advantages over other chemical entities currently in the market or in development for
gene silencing applications. These potential advantages include, among others: a backbone that has only one chiral center and
thus forms only one stereoisomer; the ability of the PNA backbone to intercalate (insert into), open up secondary (RNA folded
upon itself) and tertiary structures (RNA molecules that interact with other RNA molecules in the cell) and bind within these
double-stranded RNAs in a highly selective manner; a proprietary set of engineered nuclear bases to increase selectivity to specific
target sequences including secondary and tertiary structures that has been licensed exclusively from Carnegie Mellon University
(“CMU”); technology to allow self-assembly of our small gamma peptide-nucleic acid (“gamma-PNA”) at the
RNA target to increase selectivity, which has been licensed exclusively from CMU; the ability to modulate cell permeability and
be broadly distributed across the body when administered systemically; the lack of innate or acquired immune responses of similar
gamma-PNAs in preclinical models; and potential for low toxicity based on previous in vivo studies in rodent models. With
these advantages, we believe our PATrOL™ platform-enabled therapies can potentially address a multitude of rare genetic
diseases and cancer, among other indications.
Business Strategy
We employ a rational approach to selecting disease
targets, considering many scientific, technical, business and indication-specific factors before choosing each indication. We
intend to build a diverse portfolio of drugs custom-designed to treat a variety of health conditions, with an emphasis on rare
genetic diseases and cancer. A key component of this strategy is continuing to improve the scientific understanding of our platform
technology and programs, including how various components of our platform technology perform, and our drug candidates impact the
biological processes of the target diseases, so that we can utilize this information to reduce risk in our future programs and
indications. In addition, with our expertise in discovering and characterizing novel antisense drugs, we believe that our scientists
can optimize the properties of our PATrOL™-enabled drug candidates for use with particular targets that we determine to
be of high value.
The depth of our knowledge and expertise with gamma-PNA,
bifacial nucleotides, engineered nucleotides, genetics and genomics and therapeutic development of first-in-class modalities provides
potential flexibility to determine the optimal development and commercialization strategy to maximize the near and longer-term
value of our drug candidates.
We have distinct partnering strategies that we plan
to employ based on the specific drug candidate, therapeutic area expertise and resources potential partners may bring to a collaboration.
For some drug candidates, we may choose to develop and, if approved, commercialize them ourselves or through our affiliates. For
other drug candidates, we may form single or multi asset partnerships leveraging our partners’ global expertise and resources
needed to support large commercial opportunities.
Industry Segment Background
Rare Genetic Diseases
Globally, there are thousands of genetic diseases,
most of which lack any therapeutic options. In addition, rare genetic diseases are often particularly severe, debilitating or
fatal. Traditionally, therapeutic development for each rare genetic disorder has been approached with a unique strategy, which
is inefficient, as there are thousands of diseases that need treatment solutions. The collective population of people with rare
diseases stands to benefit profoundly from the emergence of a scalable and modular treatment development platform that allows
for a more efficient discovery of drug product candidates to address these conditions cohesively.
Mutated proteins resulting from errors in deoxyribonucleic
acid (“DNA”) sequences cause many rare genetic diseases and cancer. DNA in each cell of the body is transcribed into
pre-RNA, which is then processed (spliced) into mRNA which is exported into the cytoplasm of the cell and translated into protein.
This is termed the “central dogma” of biology. Therefore, when errors in a DNA sequence occur, they are propagated
to RNAs and can become a damaging protein. ASOs can inactivate target RNAs before they can produce harmful proteins by binding
them in a sequence-specific manner, which can potentially delay disease progression or even eliminate genetic disease symptoms.
ASOs designed to target known disease-related mutant RNA sequences could potentially address any dominantly inherited genetic
disease caused by a single genetic mutation. Similarly, applications in modifying splicing of pre-RNA in the nucleus of the cell
could be developed to exclude damaging exons from the final mRNA product. We also believe that given the ability of PNAs to insert
into double stranded DNA and RNA targets, we can potentially pursue the development of drug candidates that target these types
of nucleic acid sequences uniquely.
We believe the breadth of the PATrOL™ platform gives
us the ability to potentially address thousands of inherited genetic diseases. The technology may also allow us to target and
inactivate gain-of-function mutations by sequestering excess transcripts, and by inactivating transcripts with change-of-function
mutations in them (vs. their wild-type or normal counterparts). The technology may also allow us to address targets in recessive
disease and haploinsufficiencies by altering splicing to remove damaging exons/mutations. Various fields of use are available,
including in oncology by reducing expression of activated oncogenes or modifying gene regulation by targeting microRNAs, for example,
in complex genetic disease where subtle gene variants predispose to downstream diseases together with environmental triggers,
or potentially in genome editing.
ASO Therapies
ASO therapies have been in development for several
decades and are largely comprised of chemically modified, short-length RNA or DNA strands, commonly known as oligonucleotides.
Oligonucleotides are comprised of a sequence of nucleotides—the building blocks of RNA and DNA—that are linked together
by a backbone of chemical bonds. In nucleic acid molecules that have not been modified for therapeutic use, the nucleotides are
linked by phosphodiester (“PO”) bonds. Such unmodified nucleic acid molecules are unsuitable for use as therapeutics,
because they are rapidly degraded by enzymes called nucleases which are widely distributed in the human body, are rapidly cleared
by the kidneys and are taken up poorly by targeted cells. The industry has employed chemical modifications of the nucleotides
and PO bonds that improve the stability, biodistribution and cellular uptake of nucleic acid therapeutics.
Challenges of Historical ASOs
ASOs can be highly specific to a singular RNA sequence,
decreasing the chance of potentially toxic off-target effects. When designed properly, ASOs target exactly one mutated RNA sequence,
corresponding directly to the genetic disorder of interest. Because they are targeted selectively to one sequence, optimally constructed
ASOs do not target any additional genes and thus potentially reduce the likelihood of adverse events or side effects. While they
have great potential, in practice, the current generation of ASOs is constrained by several factors intrinsic to their composition,
including some or all of the following factors:
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they are not designed for optimal cell permeability, requiring them to
be delivered at high concentrations or using other modalities that lead to other therapeutic and development challenges;
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they fail to demonstrate consistently broad tissue distribution throughout the body, often
localizing predominantly to the liver when delivered systemically;
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they do not cross the blood-brain barrier, so they cannot access the central nervous system
to address neurological disease without being delivered directly to the central nervous system via intrathecal injection;
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they can self-aggregate, leading to potential toxic accumulation of the drug and thus possible
safety issues; and
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because natural oligonucleotides are recognized by enzymes throughout the body, they are
subject to degradation before they can take effect, and thus others have had to extensively modify backbones resulting in
immunological activation and challenges in manufacturing.
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Peptide Nucleic Acids and Janus Bases
Details on PNAs were first published
in 1991 by Peter Nielson, Michael Egholm and Ole Buchardt (Nielsen PE, Egholm M, Berg RH, Buchardt
O. (1991) Sequence-selective recognition of DNA by strand displacement with a thymine-substituted polyamide. Science. 254 (5037):
1497–500). While these PNAs were shown to be able to bind nucleic acid strands in a sequence specific manner, this
effect was not possible with targets comprised of both purines and pyrimidines. These first PNAs were also not water soluble,
could not pass across plasma membranes, and self-aggregated, leading to potential toxic accumulation of the drug and thus possible
safety issues. Based on this early data, the PNA backbone was modified at both the alpha positions to add conformational homogeneity
enabling binding with mixed purine/pyrimidine natural nuclear base targets and additionally to allow water solubility. In 1996,
Neil Branda, Guido Kurtz and Jean-Marie Lehn published “JANUS WEDGES: a new approach towards nucleobase-pair recognition”
in the journal Chemical Communications. These bifacial nuclear bases had the potential to open a double helix and bind to both
strands at a genomic locus in a “triad” motif utilizing the maximum number of Watson-Crick interactions. An issue
with these early bi-facial nucleotides was that they were not uniform in their size and thus could not be used together on a peptide
backbone to achieve the potential of binding both faces of an open DNA (or RNA) double helix.
PATrOL™ Technology Platform
Backbone technology: The PATrOLTM
platform represents a next-generation gene silencing technology that we believe has the potential to significantly improve upon
standard ASO techniques by combining the specificity of antisense approaches with the intracellular penetration and broad organ
distribution capabilities of small molecule therapeutics. We are developing ASO therapies using our modular PATrOL™ platform.
Our PATrOL™-enabled therapies act by binding to the mutant pre-RNA or messenger RNA (“mRNA”) primary sequence
(or secondary or tertiary conformations) to prevent translation by ribosomes into mutant proteins or otherwise eliminate a pathogenic
feature of the mutant transcript. Unlike other ASOs, which have a sugar backbone or a chemically modified sugar backbone, our
PATrOL™-enabled therapies are designed with a peptide backbone. Some of the potential advantages of using a peptide backbone
include:
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the peptide backbone only has two stereoisomers (which can be selected
with a single chemical modification at the chiral center), making it conformationally stable and enabling our approach to
be modular by swapping in nuclear bases of interest;
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the peptide backbone is of neutral charge, thus facilitating the potential to intercalate
(open up and insert) into double-stranded DNA and RNA hairpins, which we believe provides a unique advantage relative to other
ASO chemistry in that its enables targetable “real estate” and also allows designs based on primary sequence that
are not prohibited by secondary structures; and
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PATrOL™-enabled drugs are pre-organized into
a right-handed helical conformation which meshes with double-stranded RNA molecules (namely hairpins) and thus have a
higher potential binding affinity; and
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PATrOL™-enabled therapeutic candidates can target tissues throughout the body (due to the proprietary active moieties
coupled to the protein backbone of the PNAs as described above) and are stable in circulation due to resistance against degradation
as shown in previous studies with similar gamma-PNAs (Demidov VV, Potaman VN, Frank-Kamenetskii MD, Egholm M, Buchard O, Sönnichsen
SH, Nielsen PE. (1994) Stability of peptide nucleic acids in human serum and cellular extracts. Biochem Pharmacol. 48(6):1310-3;
McMahon BM, Mays D, Lipsky J, Stewart JA, Fauq A, Richelson E. Pharmacokinetics and tissue distribution of a peptide nucleic
acid after intravenous administration. Antisense Nucleic Acid Drug Dev. 2002 Apr;12(2):65-70
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Targeting technology: In early preclinical
studies, our PATrOL™-enabled therapeutic candidates have shown potential advantages over the existing generation of ASOs.
We believe that chief among these advantages are cell permeability and broad tissue distribution which have been demonstrated
in early preclinical studies. These advantages would allow our PATrOL™ therapeutic candidates to potentially address a wide
range of disorders affecting various organs and tissues with systemic or local administration.
The chemistry that we have licensed from CMU includes
proprietary modifications to the peptide backbone to include an active moiety, which has been shown to be able to deliver payloads
into cells through a process that appears to be endosome-independent, termed “active translocation.” The preclinical
studies that we reference, and which are the genesis of a medicinal chemistry process by the academics at CMU over the course
of more than a decade of research, were published in a peer reviewed publication in 1999 by Steven Dowdy’s team (Schwarze
SR, Ho A, Vocero-Akbani A and Dowdy SF. (1999) In Vivo Protein Transduction: Delivery of a Biologically Active Protein
into the Mouse. 285: 1569-1572). These preclinical data describe how the active
moiety can traffic a payload of 120kD not only into most tissues, but also across the blood-brain barrier and into the cell bodies
of neurons through all regions of the brain. In 2006, a team at CMU was the first to couple a similar active moiety to the peptide
backbone of PNAs and show penetration through cell membranes (Dragulescu-Andrasi A, Rapireddy S, He G, Bhattacharya B, Hyldig-Nielsen
JJ, Zon G, Ly DH. (2006) Cell-permeable peptide nucleic acid designed to bind to the 5'-untranslated region of E-cadherin transcript
induces potent and sequence-specific antisense effects. J Am Chem Soc. 128(50):16104-12.).
Nucleotide technology: With our proprietary modular technology,
we are capable of designing therapies with a peptide backbone onto which are coupled natural nuclear bases. Natural nuclear bases
are commercially available. The peptide backbone subunits, each coupled to the proprietary active moiety, are manufactured by
us and/or our suppliers. The natural nuclear bases are then coupled to the cell-permeable peptide backbone subunit to form a “monomer.”
In addition to being able to create these cell-permeable broadly distributed monomers that contain natural nuclear bases, we have
licensed proprietary engineered nuclear bases (including bi-specific “Janus” bases) exclusively from CMU which can
also be coupled to cell-permeable peptide backbone subunits. With these cell permeable monomers forming the basis of the platform,
they can be linked together to form oligomers of any sequence composition, which can target primary RNA sequences as well as secondary
RNA structures. A key attribute of the peptide backbone is that it is pre-organized chemically to form a rigid backbone (see discussion
above). We believe that the modular components (i.e. the “monomers”) together with the lack of chirality in the backbone
makes the platform highly scalable for manufacturing purposes, thus enabling a more efficient discovery of drug product candidates
for mutant gene silencing than traditional methods.
We believe we are the first and only company to successfully
create Janus bases, engineered nucleic acids that target double-stranded RNA and potentially DNA by engaging both strands at once.
The concept of Janus bases was first conceived nearly two decades ago but had not yet been realized due to the difficulty in chemical
process development and the re-engineering required to allow the bifacial bases to have equal size – key considerations
in creating tightly binding triple helices (or triads). A team of scientists, including our director of chemistry, has co-invented
16 different Janus bases to interface with every possible combination of 16 canonical and non-canonical nucleobase pairs that
could occur in target RNA. Janus bases can be combined in various combinations to bind in a sequence-specific manner to secondary
and tertiary RNA structures, whereas traditional antisense therapies generally cannot, and thus many sequences have heretofore
not been targetable. This gives us the ability to expand the applicability of antisense therapies beyond their current capabilities
as our candidates are not limited to regions of RNA that are free of secondary structure and thus potentially opens up a multitude
of additional sequence targets. Our approach can also potentially be utilized for DNA therapeutics, such as gene editing, gene
regulation and liquid biopsy diagnostics.
We have licensed proprietary technology from CMU,
which comprises the modular elements of the PATrOL™ platform, including gamma-PNAs with a series of backbone modifications,
such as with the proprietary active moieties critical for cell permeability in combination with exclusively licensed chemically
engineered bifacial nucleotides against not only canonical base pairs (A-T or C-G hydrogen bonding), but also non-canonical binding,
which allows targeting of RNA hairpins where the double-stranded RNA cannot bind to itself due to a mismatch, but that mismatch
can be bound and stabilized by the non-canonical bifacial nucleotide. The elegance of this approach is the combination of the
non-charged peptide backbone that does not cause repulsion when near a DNA or RNA negatively charged double helix with the proprietary
bifacial nucleotides of uniform size. This combination is particularly powerful at the RNA level in addressing RNA hairpins with
non-canonical bases to stabilize them and potentially eliminate the ability of target transcripts to be translated. The following
Figure 1 illustrates the concept of how our chemically engineered bifacial nuclear bases tethered to a peptide backbone
can intercalate into the double helix of double-stranded RNA and assume a stable and sterically appropriate triple helix. The
technology was developed over the course of almost a decade, and we believe it is unique to us, allowing us to target RNA secondary
structures either by opening them up via our gamma-PNA technology to bind in a primary sequence-specific manner or by intercalating
into secondary (or potentially even tertiary) structures, thus allowing sequence-specific selectivity of targets that have been
largely not addressable to competing RNA silencing technologies.
Figure 1. Simulations of a bifacial Janus
base binding to an RNA duplex containing the corresponding base-pairs illustrating the pre-organized right-handed structure of
the gamma-PNA and the steric uniformity of the bifacial nucleotides.
While traditional ASOs can be long (i.e.,
16-mers or longer), PATrOL™-enabled therapies can be as small as a 3-mer gamma-PNA due to the Janus bases, allowing them
to better reach target tissue and disseminate evenly within cells. As a result of their capability to disperse through many body
tissues, PATrOL™-enabled therapies have the potential to address whole-body symptoms of diseases that manifest in multiple
organ systems.
Product Pipeline
Huntington’s Disease
HD is a devastating rare neurodegenerative disorder.
After onset, symptoms such as uncontrolled movements, cognitive impairments and emotional disturbances worsen over time. HD is
caused by toxic aggregation of mutant huntingtin protein, leading to progressive neuron loss in the striatum and cortex of the
brain. The wildtype huntingtin gene (HTT) has a region in which a three-base DNA sequence, CAG, is repeated many times.
When the DNA sequence CAG is repeated 26 or fewer times in this region, the resulting protein behaves normally. While the wildtype
function of HTT is largely uncharacterized, the protein is known to be essential for normal brain development. When the
DNA sequence CAG is repeated 40 times or more in this region, the resulting protein becomes toxic and causes HD. Every person
has two copies, or alleles, of the HTT. Only one of the alleles (the “mutant” allele) needs to bear at least
40 CAG repeats for HD to occur. HD is one of many known repeat expansion disorders, which are a set of genetic disorders caused
by a mutation that leads to a repeat of nucleotides exceeding the normal threshold. Current therapies for patients with HD can
only manage individual symptoms. There is no approved therapy that has been shown to delay or halt disease progression. There
are approximately 30,000 symptomatic patients in the U.S. and more than 200,000 at-risk of inheriting the disease.
NT0100 Program - PATrOL™ Enabled
PNA for Huntington’s Disease
The PATrOL™ platform has the potential to address
many dominantly inherited genetic diseases. We will be initially focused on HD, a fatal rare genetic repeat expansion disorder
with no viable treatment options.
One especially important advantage of the PATrOL™
platform that makes it promising for the treatment of repeat expansion disorders like HD is the ability of our small ASOs to potentially
self-assemble within an RNA hairpin. As the number of repeats increases, the PATrOL™ oligonucleotides bind more tightly
to each other and the mutant RNA. This allows our therapies to potentially inactivate mutant HTT mRNA before it can be
translated into harmful protein via selective binding to the expanded CAG repeats while leaving the normal HTT mRNA largely
unbound to drug and producing functional protein. Achieving mutant allele selectivity would be a key advantage for any RNA-based
approach aiming to treat HD. The PATrOL™-enabled NT0100 program is currently in preclinical development for the treatment
of HD.
NT0200 Program- PATrOL™ Enabled gamma-PNA
for Myotonic Dystophy Type 1
Our pipeline also contains a second near-term, potentially
transformative medicine, which we believe has significant potential for a different severe and rare trinucleotide repeat disease,
DM1. Myotonic dystrophy type 1 (DM1) is a multisystem disorder that primarily affects skeletal and smooth muscle. DM1 is caused
by expansion of a CTG trinucleotide repeat in the noncoding region of the DMPK gene, which captures and sequesters splice
proteins. Sequestered splice proteins cannot then fulfill their normal functions. The diagnosis of DM1 is suspected in individuals
with characteristic muscle weakness and is confirmed by molecular genetic testing of DMPK. CTG repeat length exceeding
34 repeats is abnormal. Molecular genetic testing detects pathogenic variants in nearly 100% of affected individuals. It is estimated
that the global prevalence of DM1 is 1:20,000 individuals. The clinical candidates in development target the DM1 expanded allele
with PATrOL™-enabled drug candidates to disrupt and/or open the mutant hairpin and allow release of sequestered splice proteins.
Additional Indications
In addition, we are in the process of building an
early stage pipeline of other therapies that focus on the unique advantages of our technology across a variety of rare diseases.
Intellectual Property
We have a strong intellectual property position behind
our fundamental PATrOL™ technology that was developed at CMU. Our success depends, in part, on our ability to obtain patent
protection for our product candidates in the United States and other countries. We have exclusively licensed patent applications,
pursuant to our license agreement with CMU (the “CMU License Agreement”), protecting our platform for development
and commercialization of oligonucleotide therapeutics. We will focus our resources on obtaining patents and filing new patent
applications that drive value.
We have an exclusive license to patent applications
pursuant to the CMU License Agreement that may provide exclusivity for product candidates in our pipeline and may provide exclusivity
for our core technology. Our core technology patent applications are directed to chemically-modified nucleosides and peptide nucleic
acids to form compounds of biological and clinical interest. We have exclusively licensed patent applications pursuant to the
CMU License Agreement to cover 16 Janus bases and treatment of repeat expansion disorders using this technology.
Peptide Nucleic Acids containing Modified Nucleobases
We have exclusively licensed patent applications
pursuant to the CMU License Agreement covering peptide nucleic acid oligomers containing modified nucleobases, which can be used
as a basis for therapeutics. Nucleosides and chemically modified nucleosides are the basic building blocks of our drug development
platform. Therefore, claims that cover an oligonucleotide incorporating one of our proprietary modified nucleosides may apply
to a wide array of mechanisms of action and therapeutic targets. Our modified nucleobases may comprise a divalent nucleobase in
sequence with several other divalent nucleobases to create a PNA.
We have filed patent applications in this category
in the United States and pursuant to the Patent Cooperation Treaty.
Methods of Producing Peptide Nucleic Acids
with Modified Nucleobases
We have exclusively licensed a patent (with an estimated
expiration date of April 11, 2034) in the United States pursuant to the CMU License Agreement disclosing a method of manufacturing
a peptide nucleic acid oligomer containing a modified nucleobase. We have exclusively licensed a provisional patent application
(with an estimated expiration date of March 21, 2040) in the United States pursuant to the CMU License Agreement disclosing a
method of synthesis of LH and RH gamma PNA monomers with on-resin sidechain functionalization.
Use of Peptide Nucleic Acids to Disrupt RNA
Structure
We have exclusively licensed a provisional patent
application (with an estimated expiration date of June 7, 2039) in the United States pursuant to the CMU License Agreement covering
use of a peptide nucleic acid oligomer for disrupting a target RNA structure, to prevent translation of a target protein.
Use of Peptide Nucleic Acids to Treat Repeat
Expansion Disorders
We have exclusively licensed patent applications
(with an estimated expiration date of February 22, 2040) in the United States pursuant to the CMU License Agreement covering the
use of a peptide nucleic acid oligomer for the treatment of repeat expansion disorders, including, for example, HD and DM1.
Patent Portfolio
As of January 7, 2020, we owned or in-licensed approximately
2 issued patents, which will expire in approximately 2034 without taking into account and possible patent term adjustments or
extensions. As of January 7, 2020, we also owned or in-licensed approximately 13 patent applications, which if ultimately issued
would expire as late as approximately 2040, based upon the potential expiration date of the last to expire of those patent applications
without taking into account any possible patent term adjustments or extensions. As to the in-licensed patents and patent applications,
they include 2 issued patents and 12 patent applications from CMU pursuant to the CMU License Agreement.
We plan to seek patent protection in significant
markets and/or countries for each product to be developed. We also seek to maximize patent terms. In some cases, the patent term
can be extended to recapture a portion of the term lost during the U.S. Food and Drug Administration (the “FDA”) regulatory
review. The patent exclusivity period for a drug may deter generic drugs from entering the market. Patent exclusivity depends
on a number of factors including initial patent term and available patent term extensions based upon delays caused by the regulatory
approval process.
We also rely on trade secrets, proprietary know-how
and continuing technological innovation to develop and maintain a competitive position in our field.
While we have obtained patents and have patent applications
pending, the extent of effective patent protection in the United States and other countries is highly uncertain. No consistent
policy addresses the breadth of claims allowed in or the degree of protection afforded under patents of medical and pharmaceutical
companies. Patents we currently own or may obtain might not be sufficiently broad to protect us against competitors with
similar technology. Any of our patents could be invalidated or circumvented.
The holders of competing patents could determine to commence
a lawsuit against us and may even prevail in any such lawsuit. Litigation could result in substantial cost to and diversion
of effort by us, which may harm our business. In addition, our efforts to protect or defend our proprietary rights may not be
successful or, even if successful, may result in substantial cost to us.
License Agreement with Carnegie Mellon University
On December 17, 2018, we entered into the CMU License Agreement.
Under the CMU License Agreement, CMU granted us an exclusive, worldwide right to the PATrOL™ technology, with 14 patents
and patent applications describing composition of matter and uses of the platform. Our exclusive, worldwide right to the PATrOL™
technology is subject to CMU’s right (which is exercisable only upon our written consent) to grant a non-exclusive license
to a third party as a means of resolving disputes or to settle claims arising out of allegations that the licensed technology
under the CMU License Agreement infringes upon the intellectual property rights of such third party.
As partial consideration for the license right, we issued and
delivered to CMU 835,625 shares of our common stock, which constituted 8.2% of the then fully diluted shares of our common stock.
Further, as partial consideration for the license right, we issued a warrant to CMU, exercisable only upon the earlier of (i)
the day that we received cumulative capital funding or revenues equal to $2 million or (ii) 30 days prior to any change of control
event that provides for the issuance of shares, for a number of shares of our common stock sufficient such that when added to
the 835,625 shares of our common stock, CMU’s holds in the aggregate an amount equal to 8.2% of the fully-diluted shares
of our common stock; provided, however, that for purposes of calculating 8.2%, only the first $2 million of capital
funding shall be considered in the determination of fully-diluted shares of our common stock. CMU exercised the warrant issued
under the CMU License Agreement prior to the effective time of the Merger (as defined below) for an aggregate of 103,787 shares
of our common stock. Under the CMU License Agreement, CMU has preemptive rights with respect to certain future sales of securities
by us for capital-raising purposes, “piggyback” registration rights and co-sale rights with respect to certain resales
of shares by our stockholders.
Pursuant to the CMU License Agreement, we paid CMU a one-time
payment of approximately $54,000 for patenting and other intellectual property protection costs incurred by CMU prior to the effective
date of the CMU License Agreement and relating to the licensed technology thereunder. Further, we must achieve certain milestones
to demonstrate certain developments of the licensed product. We may obtain one 6-month extension to meet each milestone by making
a nominal payment to CMU. Further, subject to certain conditions, we will pay to CMU royalties at a low single-digit percentage
of aggregate annual net sales of licensed products and a percentage at the higher range of the bottom third of sublicensing fees.
The term of the CMU License Agreement concludes at the end
of 20 years from its effective date or on the expiration date of the last-to-expire patent licensed, whichever comes later, unless
otherwise terminated. The CMU License Agreement may be terminated (or the exclusivity of the license may be terminated) before
the term due to customary payment default and fundamental change default provisions and failure of performance obligations. In
addition, CMU may terminate the CMU License Agreement if we or our affiliates challenge the validity of the intellectual property
licensed thereunder in a judicial or administrative proceeding. In the event we or our affiliates successfully challenge the validity
of the intellectual property licensed thereunder, the royalties payable to CMU increase by a single digit percentage. We may terminate
the CMU License Agreement upon payment of termination fees, the amounts of which depend on the date of such termination, but only
if at the time of such termination, a licensed patent contains a valid claim. If not earlier terminated, at the expiration of
the term, the rights and licenses granted to us by CMU survive in perpetuity, subject to our compliance with indemnification and
dispute resolution obligations.
Manufacturing
We currently manufacture our starting materials using
third-party suppliers and our research-scale final products both in-house and externally. We intend to rely on third parties for
larger scale manufacturing going forward. We do not have any current contractual arrangements for the manufacture of commercial
supplies of any of our product candidates that we may develop. We currently employ internal resources and third-party consultants
to manage our manufacturing contractors.
Sales and Marketing
We have not yet defined our sales, marketing or product
distribution strategy for any of our future product candidates. Our commercial strategy may include the use of strategic partners,
distributors, a contract sale force, or the establishment of our own commercial and specialty sales force, as well as similar
strategies for regions and territories outside the United States. We plan to further evaluate these alternatives when it approaches
approval for the use of our product candidates for one or more indications.
Competition
The biotechnology industry is highly competitive
and involves a high degree of risk. Potential competitors in the United States and worldwide are numerous and include pharmaceutical
and biotechnology companies, educational institutions and research foundations. We compete with many of these companies who, either
alone or with their strategic partners, have far greater experience, capital resources, research and technical resources, marketing
experience, clinical trial experience, research and development staffs and facilities than we do. Some of our competitors may
develop and commercialize products that compete directly with our product candidates, and they may introduce products to market
earlier than our products or on a more cost-effective basis. These competitors also compete with us in recruiting and retaining
qualified scientific and management personnel and also, in the future, to recruit clinical trial sites and subjects for our
clinical trials.
We expect any products that we develop and commercialize
to compete on the basis of, among other things, efficacy, safety, price and the availability of reimbursement from government
and other third-party payors. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize
products that are viewed as safer, more effective, more convenient or less expensive than any products that we may develop. Our
competitors also may obtain FDA or other regulatory approval for their competing products more rapidly than we may obtain approval
for any of our product candidates, which could result in our competitors establishing a strong market position before we are able
to enter the market.
There are currently no approved treatments available
to slow the progression of HD. Based on publicly available information, Roche and Ionis have an investigational drug in Phase
III clinical development, and several companies have ongoing clinical and preclinical programs targeting the underlying disease
in HD, including Wave Life Sciences, LTD., Sangamo Biosciences, ProQR, Nuredis, uniQure, Spark Therapeutics (which was recently
acquired by Roche) and Voyager Therapeutics. A number of other companies are developing drugs focused on treating the symptoms
associated with HD, including Teva Pharmaceutical Industries (Phase II), Vaccinex (Phase II), Prana Biotechnology (Phase II),
Omeros Corporation (Phase II), Stealth BioTherapeutics (Phase II) and Azevan Pharmaceuticals (Phase II), among others.
There are no disease-modifying treatments available
for DM1. Based on review of the clinictrials.gov and clinicialtrialsregister.eu websites, AMO Pharmaceuticals reported results
of a 16-patient non-randomized, clinical trial in congenital DM1 with tidegluseb, a thiazoledione that inhibits glycogen synthase
kinase 3 beta, and is also currently initiating a 56 patient Phase II/III randomized, controlled study. Ionis conducted a Phase
I/II trial of IONIS-DMPKRx in a randomized, controlled 48 patients with DM1 that did not demonstrate efficacy, and has since abandoned
the indication. The Centre d’Etude des Cellules Souches (CECS), a non-commercial sponsor, is conducting a 40-patient clinical
trial of metformin in DM1 in France. In addition to AMO Pharmaceuticals, Dyne, Vertex, Triplet Therapeutics, Expansion Therapeutics,
and Nuredis are investigating agents to treat DM1.
Reverse Stock Split
On January 18, 2019, following a special meeting of our stockholders,
our board of directors approved a one-for-twenty reverse stock split of our issued and outstanding shares of common stock (the
“Reverse Stock Split”). On January 23, 2019, we filed with the Secretary of State of the State of Delaware a Certificate
of Amendment to our Certificate of Incorporation to effect the Reverse Stock Split. Our common stock began trading on a split-adjusted
basis when the market opened on February 4, 2019. As a result of the Reverse Stock Split, the outstanding common stock decreased
from 56,466,428 shares of common stock, par value $0.0001 per share, to 2,829,248 shares of common stock, par value $0.0001 per
share.
Unless otherwise noted, impacted amounts and share information
included in the financial statements and notes thereto, and elsewhere in this Form 10-K have been retroactively adjusted for the
Reverse Stock Split as if such Reverse Stock Split occurred on the first day of the first period presented. Certain amounts in
the financial statements, the notes thereto, and elsewhere in this Form 10-K, may be slightly different than previously reported
due to rounding of fractional shares as a result of the Reverse Stock Split.
Merger
On July 12, 2019, Ohr Pharmaceutical, Inc., a Delaware
corporation (“Ohr”), completed a merger with NeuBase Therapeutics, Inc., a Delaware corporation (“Legacy NeuBase”),
in accordance with the terms of the Agreement and Plan of Merger Reorganization entered into on January 2, 2019 (the “Merger
Agreement”). Pursuant to the Merger Agreement, (i) a subsidiary of Ohr merged with and into Legacy NeuBase, with Legacy
NeuBase (renamed as “NeuBase Corporation”) continuing as a wholly-owned subsidiary of Ohr and the surviving corporation
of the merger and (ii) Ohr was renamed as “NeuBase Therapeutics, Inc.” (the “Merger”). At the closing
of the Merger, each outstanding share of Legacy NeuBase’s capital stock was converted into the right to receive 1.019055643
shares of the Company’s common stock. Shares of the Company’s common stock commenced trading on the Nasdaq Capital
Market under the ticker symbol “NBSE” as of market open on July 15, 2019. The Company’s previous ticker symbol
was “OHRP”.
Unless otherwise noted, impacted amounts and share information
included in the financial statements and notes thereto, and elsewhere in this Form 10-K have been retroactively adjusted for the
Merger as if such Merger occurred on the first day of the first period presented. Certain amounts in the financial statements,
the notes thereto, and elsewhere in this Form 10-K, may be slightly different than previously reported due to rounding of fractional
shares as a result of the Merger.
Pre-Merger Financing
On July 11, 2019, prior to the completion of the
Merger, Legacy NeuBase completed transactions contemplated by certain financing agreements (the “Pre-Merger Financing”)
resulting in gross proceeds to Legacy NeuBase of approximately $9.0 million, consisting of (i) a private placement with certain
accredited investors, whereby, among other things, Legacy NeuBase issued to such investors shares of Legacy NeuBase common stock
for an aggregate purchase price of approximately $8.40 million (the “Legacy NeuBase Equity Financing”) and (ii) the
conversion of outstanding convertible notes of Legacy NeuBase with an aggregate principal amount of $600,000 (the “Legacy
NeuBase Debt Financing”), which were automatically converted into Legacy NeuBase common stock immediately preceding the
closing of the Legacy NeuBase Equity Financing at a conversion price equal to 90% of the purchase price per share of the Legacy
NeuBase common stock issued in the Legacy NeuBase Equity Financing.
Post-Merger Financing
On July 12, 2019, we entered into a Securities Purchase
Agreement with certain accredited investors, pursuant to which, among other things, we agreed to sell to the investors an aggregate
of 1,538,462 shares of common stock at a purchase price of $3.25 per share for aggregate gross proceeds of $5.0 million (the “Post-Merger
Financing”). On July 16, 2019, we completed the Post-Merger Financing and issued an aggregate of 1,538,462 shares of our
common stock.
Legacy Pre-Merger Programs
As a result of the Merger, our going-forward operations will
be primarily those of Legacy NeuBase. Pursuant to the Merger, we retained certain assets and technologies that were Ohr’s
assets and technologies before the consummation of the Merger. Despite our expectation that our primary operations will be those
of Legacy NeuBase on a going-forward basis, we may choose to monetize legacy Ohr assets in the future. Previously, Ohr acquired
the SKS Ocular 1 LLC sustained release technology, which was designed to develop best in class drug formulations for ocular disease
(the “SKS Assets”) and exclusive rights to an animal model for dry macular degeneration and rights to produce and
use carboxyethylpyrrole (“CEP”) for research, clinical and commercial applications (the “CEP Assets”).
In September 2019, we terminated the licenses for the SKS Assets and the CEP Assets, as the Board determined there would be substantial
costs associated with continuing to maintain such assets and attempts to monetize such assets would be a distraction to our management
and other employees and an inefficient use of their time. We continue to retain an equity interest in DepYmed, Inc. (“DepYmed”),
a joint venture that Ohr entered into with Cold Spring Harbor Laboratory in 2014. DepYmed is a preclinical stage company focused
on Wilson’s disease, Rett syndrome, and oncology applications. We also retain intellectual property which has been licensed
to DepYmed and have no other ongoing obligations (monetary or otherwise) to DepYmed.
Governmental Regulation
Government authorities in the United States (including federal,
state and local authorities) and in other countries, extensively regulate, among other things, the manufacturing, research and
clinical development, marketing, labeling and packaging, storage, distribution, post-approval monitoring and reporting, advertising
and promotion, pricing and export and import of pharmaceutical products, such as our product candidates. The process of obtaining
regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations
require the expenditure of substantial time and financial resources. Moreover, failure to comply with applicable regulatory requirements
may result in, among other things, warning letters, clinical holds, civil or criminal penalties, recall or seizure of products,
injunction, disbarment, partial or total suspension of production or withdrawal of the product from the market. Any agency or
judicial enforcement action could have a material adverse effect on us.
Food and Drug Administration Regulation and Marketing
Approval
In the United States, the FDA regulates drugs under the Federal
Food, Drug, and Cosmetic Act (the “FDCA”), and related regulations. Drugs are also subject to other federal, state
and local statutes and regulations. Failure to comply with the applicable U.S. regulatory requirements at any time during the
drug development process, approval process or after approval may subject an applicant to administrative or judicial sanctions
and non-approval of product candidates. These sanctions could include the imposition by the FDA or an Institutional Review Board
(“IRB”) of a clinical hold on clinical trials, the FDA’s refusal to approve pending applications or related
supplements, withdrawal of an approval, untitled or warning letters, product recalls, product seizures, total or partial suspension
of production or distribution, injunctions, fines, restitution, disgorgement, civil penalties or criminal prosecution. Such actions
by government agencies could also require us to expend a large amount of resources to respond to the actions. Any agency or judicial
enforcement action could have a material adverse effect on us.
The FDA and comparable regulatory agencies in state and local
jurisdictions and in foreign countries impose substantial requirements upon the clinical development, manufacture and marketing
of pharmaceutical products.
These agencies and other federal, state and local entities
regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, packaging,
storage, distribution, record-keeping, approval, post-approval monitoring, advertising, promotion, sampling and import and export
of our products. Our drug candidates must be approved by the FDA through the New Drug Application (“NDA”) process
before they may be legally marketed in the United States.
The process required by the FDA before drugs may be marketed
in the United States generally involves the following:
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completion of non-clinical laboratory tests, animal studies and formulation studies conducted
according to good laboratory practice or other applicable regulations;
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submission of an Investigational New Drug application (“IND”), which allows clinical
trials to begin unless the FDA objects within 30 days;
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adequate and well-controlled human clinical trials to establish the safety and efficacy of the
proposed drug for its intended use or uses conducted in accordance with Good Clinical Practices (“GCPs”), which
are international ethical and scientific quality standards meant to assure that the rights, safety and well-being of trial
participants are protected, and to define the roles of clinical trial sponsors, administrators and monitors and to assure
clinical trial data integrity;
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pre-approval inspection of manufacturing facilities and clinical trial sites; and
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FDA approval of an NDA, which must occur before a drug can be marketed or sold.
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IND and Clinical Trials
Prior to commencing the first clinical trial, an IND, which
contains the results of preclinical studies along with other information, such as information about product chemistry, manufacturing
and controls and a proposed protocol, must be submitted to the FDA. The IND automatically becomes effective 30 days after receipt
by the FDA unless the FDA within the 30-day time period raises concerns or questions about the conduct of the clinical trial.
In such a case, the IND sponsor must resolve any outstanding concerns with the FDA before the clinical trial may begin. A separate
submission to the existing IND must be made for each successive clinical trial to be conducted during drug development. Further,
an independent IRB for each site proposing to conduct the clinical trial must review and approve the investigational plan for
any clinical trial before it commences at that site. Informed written consent must also be obtained from each trial subject. Regulatory
authorities, including the FDA, an IRB, a data safety monitoring board or the sponsor, may suspend or terminate a clinical trial
at any time on various grounds, including a finding that the participants are being exposed to an unacceptable health risk or
that the clinical trial is not being conducted in accordance with FDA requirements.
For purposes of NDA approval, human clinical trials are typically
conducted in sequential phases that may overlap:
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Phase I - The drug is initially given to healthy human subjects or patients in order to
determine metabolism and pharmacologic actions of the drug in humans, side effects and, if possible, to gain early evidence
on effectiveness. During Phase I clinical trials, sufficient information about the investigational drug’s pharmacokinetics
and pharmacologic effects may be obtained to permit the design of well-controlled and scientifically valid Phase II clinical
trials.
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Phase II - Clinical trials are conducted to evaluate the effectiveness of the drug for
a particular indication or in a limited number of patients in the target population to identify possible adverse effects and
safety risks, to determine the efficacy of the drug for specific targeted diseases and to determine dosage tolerance and optimal
dosage. Multiple Phase II clinical trials may be conducted by the sponsor to obtain information prior to beginning larger
and more expensive Phase III clinical trials.
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Phase III - When Phase II clinical trials demonstrate that a dosage range of the drug
appears effective and has an acceptable safety profile, and provide sufficient information for the design of Phase III clinical
trials, Phase III clinical trials in an expanded patient population at multiple clinical sites may be undertaken. They are
performed after preliminary evidence suggesting effectiveness of the drug has been obtained, and are intended to further evaluate
dosage, effectiveness and safety, to establish the overall benefit-risk relationship of the investigational drug and to provide
an adequate basis for product labeling and approval by the FDA. In most cases, the FDA requires two adequate and well-controlled
Phase III clinical trials to demonstrate the efficacy of the drug in an expanded patient population at multiple clinical trial
sites.
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Phase IV - The FDA may require, or companies may pursue, additional clinical trials after
a product is approved. These Phase IV clinical trials may be made a condition to be satisfied for continuing drug approval.
The results of Phase IV clinical trials can confirm the effectiveness of a product candidate and can provide important safety
information.
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All clinical trials must be conducted in accordance with FDA
regulations, GCP requirements and their protocols in order for the data to be considered reliable for regulatory purposes.
An investigational drug product that is a combination of two
different drugs in the same dosage form must comply with an additional rule that requires that each component make a contribution
to the claimed effects of the drug product. This typically requires larger studies that test the drug against each of its components.
In addition, typically, if a drug product is intended to treat a chronic disease, as is the case with some of our product candidates,
safety and efficacy data must be gathered over an extended period of time, which can range from six months to three years or more.
Government regulation may delay or prevent marketing of product candidates or new drugs for a considerable period of time and
impose costly procedures upon our activities.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA-regulated products, including
drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population,
phase of investigation, study sites and investigators, and other aspects of the clinical trial, is then made public as part of
the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of
the results of these trials can be delayed until the new product or new indication being studied has been approved. Competitors
may use this publicly available information to gain knowledge regarding the progress of development programs.
The NDA Approval Process
In order to obtain approval to market a drug in the United
States, a marketing application must be submitted to the FDA that provides data establishing to the FDA’s satisfaction the
safety and effectiveness of the investigational drug for the proposed indication. Each NDA submission requires a substantial user
fee payment (exceeding $2.5 million in fiscal year 2019) unless a waiver or exemption applies. The application includes all relevant
data available from pertinent non-clinical studies, or preclinical studies and clinical trials, including negative or ambiguous
results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing,
controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the
safety and effectiveness of a use of a product, or from a number of alternative sources, including studies initiated by investigators
that meet GCP requirements.
During the development of a new drug, sponsors are given opportunities
to meet with the FDA at certain points. These points may be prior to submission of an IND, at the end of Phase II clinical trials,
and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor
to share information about the data gathered to date, for the FDA to provide advice and for the sponsor and the FDA to reach agreement
on the next phase of development. Sponsors typically use the end-of-Phase II clinical trials meetings to discuss their Phase II
clinical trials results and present their plans for the pivotal Phase III registration trial that they believe will support approval
of the new drug.
Concurrent with clinical trials, companies usually complete
additional preclinical safety studies and must also develop additional information about the chemistry and physical characteristics
of the drug and finalize a process for the NDA sponsor’s manufacturing the product in compliance with Current Good Manufacturing
Practice (“cGMP”) requirements. The manufacturing process must be capable of consistently producing quality batches
of the product candidate and the manufacturer must develop methods for testing the identity, strength, quality and purity of the
final drugs. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate
that the product candidate does not undergo unacceptable deterioration over its shelf-life.
The results of drug development, non-clinical studies and clinical
trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed
labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product.
The FDA reviews all NDAs submitted to ensure that they are sufficiently complete for substantive review before it accepts them
for filing. It may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted
with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. The
FDA has 60 days from its receipt of an NDA to conduct an initial review to determine whether the application will be accepted
for filing based on the FDA’s threshold determination that the application is sufficiently complete to permit substantive
review. If the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed
product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure
and preserve the product’s identity, strength, quality and purity. The FDA has agreed to specific performance goals on the
review of NDAs and seeks to review standard NDAs within 12 months from submission of the NDA. The review process may be extended
by the FDA for three additional months to consider certain late submitted information or information intended to clarify information
already provided in the submission. After the FDA completes its initial review of an NDA, it will communicate to the sponsor that
the drug will either be approved, or it will issue a complete response letter to communicate that the NDA will not be approved
in its current form and inform the sponsor of changes that must be made or additional clinical, non-clinical or manufacturing
data that must be received before the application can be approved, with no implication regarding the ultimate approvability of
the application or the timing of any such approval, if ever. If, or when, those deficiencies have been addressed to the FDA’s
satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions
in two to six months depending on the type of information included. The FDA may refer applications for novel drug products or
drug products that present difficult questions of safety or effectiveness to an advisory committee, typically a panel that includes
clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and,
if so, under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations
carefully when making decisions.
Before approving an NDA, the FDA typically will inspect the
facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing
processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product
within required specifications. Additionally, before approving an NDA, the FDA may inspect one or more clinical sites to assure
compliance with GCP regulations. If the FDA determines the application, manufacturing process or manufacturing facilities are
not acceptable, it typically will outline the deficiencies and often will request additional testing or information. This may
significantly delay further review of the application. If the FDA finds that a clinical site did not conduct the clinical trial
in accordance with GCP regulations, the FDA may determine the data generated by the clinical site should be excluded from the
primary efficacy analyses provided in the NDA. Additionally, notwithstanding the submission of any requested additional information,
the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
The FDA may require, or companies may pursue, Phase IV clinical
trials, which are additional clinical trials performed after a product is approved. Phase IV clinical trials may be made a condition
to be satisfied for continuing drug approval. The results of Phase IV clinical trials can confirm the effectiveness of a product
candidate and can provide important safety information. In addition, the FDA now has express statutory authority to require sponsors
to conduct post-marketing trials to specifically address safety issues identified by the agency.
The FDA also has authority to require a Risk Evaluation and
Mitigation Strategy (“REMS”), from manufacturers to ensure that the benefits of a drug outweigh its risks. A sponsor
may also voluntarily propose a REMS as part of the NDA submission. The need for a REMS is determined as part of the review of
the NDA. Based on statutory standards, elements of a REMS may include “dear doctor letters,” a medication guide, more
elaborate targeted educational programs, and in some cases elements to assure safe use (“ETASU”), which is the most
restrictive REMS. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing,
dispensing only under certain circumstances, special monitoring and the use of patient registries. These elements are negotiated
as part of the NDA approval, and in some cases if consensus is not obtained until after the “review date” set forth
under the Prescription Drug User Fee Act of 1992, as amended, the approval date may be delayed. Once adopted, REMS are subject
to periodic assessment and modification.
Changes to some of the conditions established in an approved
application, including changes in indications, labeling, manufacturing processes or facilities, require submission and FDA approval
of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires
clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements
as it does in reviewing NDAs.
Even if a product candidate receives regulatory approval, the
approval may be limited to specific disease states, patient populations and dosages, or might contain significant limitations
on use in the form of warnings, precautions or contraindications, or in the form of onerous risk management plans, restrictions
on distribution or post-marketing trial requirements. Further, even after regulatory approval is obtained, later discovery of
previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product
from the market. Delay in obtaining, or failure to obtain, regulatory approval for our products, or obtaining approval but for
significantly limited use, would harm our business. In addition, we cannot predict what adverse governmental regulations may arise
from future U.S. or foreign governmental action.
Orphan Designation and Exclusivity
The FDA may grant orphan drug designation to drugs intended
to treat a rare disease or condition that affects fewer than 200,000 individuals in the United States, or if it affects more than
200,000 individuals in the United States and there is no reasonable expectation that the cost of developing and making the drug
for this type of disease or condition will be recovered from sales in the United States.
Orphan drug designation entitles a party to financial incentives
such as opportunities for grant funding towards clinical study costs, tax advantages, and user-fee waivers. Orphan drug designation
does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. In addition, the first
NDA or Biologics License Application (“BLA”) applicant to receive orphan drug designation for a particular drug is
entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the
same indication for a period of seven years in the United States, except in limited circumstances. Orphan drug exclusivity does
not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease
or condition. Our initial two programs are targeting orphan indications.
The Hatch-Waxman Amendments
Under the Drug Price Competition and Patent Term Restoration
Act of 1984, as amended, commonly known as the Hatch-Waxman Amendments, a portion of a product’s U.S. patent term that was
lost during clinical development and regulatory review by the FDA may be restored. The Hatch-Waxman Amendments also provide a
process for listing patents pertaining to approved products in the FDA’s Approved Drug Products with Therapeutic Equivalence
Evaluations (commonly known as the Orange Book) and for a competitor seeking approval of an application that references a product
with listed patents to make certifications pertaining to such patents. In addition, the Hatch-Waxman Amendments provide for a
statutory protection, known as non-patent exclusivity, against the FDA’s acceptance or approval of certain competitor applications.
Patent Term Restoration
Patent term restoration can compensate for time lost during
drug development and the regulatory review process by returning up to five years of patent life for a patent that covers a new
product or its use. This period is generally one-half the time between the effective date of an IND (falling after issuance of
the patent) and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application,
provided the sponsor acted with diligence. Patent term restorations, however, cannot extend the remaining term of a patent beyond
a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended and the
extension must be applied for prior to expiration of the patent. The United States Patent and Trademark Office, in consultation
with the FDA, reviews and approves the application for any patent term extension or restoration.
Orange Book Listing
In seeking approval for a drug through an NDA, applicants are
required to list with the FDA each patent whose claims cover the applicant’s product. Upon approval of a drug, each of the
patents listed by the NDA holder listed in the drug’s application or otherwise are then published in the FDA’s Orange
Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated
new drug application (“ANDA”). An ANDA provides for marketing of a drug product that has the same active ingredients
in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically
equivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct,
or submit results of, preclinical studies or clinical trials to prove the safety or effectiveness of their drug product. Drugs
approved in this way are commonly referred to as “generic equivalents” to the listed drug and can often be substituted
by pharmacists under prescriptions written for the original listed drug.
The ANDA applicant is required to certify to the FDA concerning
any patents listed for the approved product in the FDA’s Orange Book. Specifically, the applicant must certify that: (1)
the required patent information has not been filed; (2) the listed patent has expired; (3) the listed patent has not expired but
will expire on a particular date and approval is sought after patent expiration; or (4) the listed patent is invalid or will not
be infringed by the new product. The ANDA applicant may also elect to submit a Section VIII statement certifying that its proposed
ANDA label does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed
method-of-use patent. If the applicant does not challenge the listed patents, the ANDA application will not be approved until
all the listed patents claiming the referenced product have expired.
A certification that the new product will not infringe the
already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If
the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph
IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders
may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent
infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving
the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit or a decision in the infringement
case that is favorable to the ANDA applicant.
An applicant submitting an NDA under Section 505(b)(2) of the
FDCA (a “Section 505(b)(2) NDA”), which permits the filing of an NDA where at least some of the information required
for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of
reference, is required to certify to the FDA regarding any patents listed in the Orange Book for the approved product it references
to the same extent that an ANDA applicant would.
Market Exclusivity
Market exclusivity provisions under the FDCA also can delay
the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity
within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical
entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion
responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an ANDA or
a Section 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have
a legal right of reference to all the data required for approval. However, an application may be submitted after four years if
it contains a Paragraph IV certification. The FDCA also provides three years of marketing exclusivity for an NDA, a Section 505(b)(2)
NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or
sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications,
dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical
investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and
three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would
be required to conduct or obtain a right of reference to all of the non-clinical studies and adequate and well-controlled clinical
trials necessary to demonstrate safety and effectiveness.
Post-Marketing Requirements.
Following approval of a new product, a pharmaceutical company
and the approved product are subject to continuing regulation by the FDA, including, among other things, monitoring and record-keeping
activities, reporting to the applicable regulatory authorities of adverse experiences with the product, providing the regulatory
authorities with updated safety and efficacy information, product sampling and distribution requirements, and complying with promotion
and advertising requirements, which include, among others, standards for direct-to-consumer advertising, restrictions on promoting
drugs for uses or in patient populations that are not described in the drug’s approved labeling (known as “off-label
use”), limitations on industry-sponsored scientific and educational activities and requirements for promotional activities
involving the internet, including social media. Although physicians may prescribe legally available drugs for off-label uses,
manufacturers may not market or promote such off-label uses. Modifications or enhancements to the product or its labeling or changes
of the site of manufacture are often subject to the approval of the FDA and other regulators, who may or may not grant approval,
or may include in a lengthy review process.
Prescription drug advertising is subject to federal, state
and foreign regulations. In the United States, the FDA regulates prescription drug promotion, including direct-to-consumer advertising.
Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Any distribution of
prescription drug products and pharmaceutical samples must comply with the U.S. Prescription Drug Marketing Act of 1987, as amended,
a part of the FDCA.
In the United States, once a product is approved, its manufacture
is subject to comprehensive and continuing regulation by the FDA. The FDA regulations require that products be manufactured in
specific, approved facilities and in accordance with cGMP. NeuBase relies, and expects to continue to rely, on third parties for
the production of clinical and commercial quantities of our products in accordance with cGMP regulations. cGMP regulations require,
among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation
and the obligation to investigate and correct any deviations from cGMP. Drug manufacturers and other entities involved in the
manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies
and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws.
Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain
cGMP compliance. These regulations also impose certain organizational, procedural and documentation requirements with respect
to manufacturing and quality assurance activities. NDA holders using contract manufacturers, laboratories or packagers are responsible
for the selection and monitoring of qualified firms and, in certain circumstances, qualified suppliers to these firms. These firms
and, where applicable, their suppliers are subject to inspections by the FDA at any time, and the discovery of violative conditions,
including failure to conform to cGMP, could result in enforcement actions that interrupt the operation of any such product or
may result in restrictions on a product, manufacturer, or holder of an approved NDA, including, among other things, recall or
withdrawal of the product from the market.
The FDA also may require post-marketing testing, also known
as Phase IV testing, REMS to monitor the effects of an approved product or place conditions on an approval that could restrict
the distribution or use of the product. Discovery of previously unknown problems with a product or the failure to comply with
applicable FDA requirements can have negative consequences, including adverse publicity, judicial or administrative enforcement,
untitled or warning letters from the FDA, mandated corrective advertising or communications with doctors, withdrawal of approval,
and civil or criminal penalties, among others. Newly-discovered or developed safety or effectiveness data may require changes
to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the
implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation,
may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products in
development.
Reimbursement, Anti-Kickback and False Claims Laws and
Other Regulatory Matters
In the United States, the research, manufacturing, distribution,
sale and promotion of drug products and medical devices are potentially subject to regulation by various federal, state and local
authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services (“CMS”), other divisions
of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the Drug Enforcement Administration,
the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the
Environmental Protection Agency, state Attorneys General and other state and local government agencies. For example, sales, marketing
and scientific/educational grant programs must comply with the federal Anti-Kickback Statute, the federal False Claims Act, the
privacy regulations promulgated under the Health Insurance Portability and Accountability Act of 1996, and similar state laws.
Pricing and rebate programs must comply with the Medicaid Drug Rebate Program requirements of the Omnibus Budget Reconciliation
Act of 1990, as amended, and the Veterans Health Care Act of 1992, as amended. If products are made available to authorized users
of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. The handling of
any controlled substances must comply with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act.
Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. All of these
activities are also potentially subject to federal and state consumer protection and unfair competition laws.
The Medicare Modernization Act (“MMA”) established
the Medicare Part D program (“Part D”) to provide a voluntary prescription drug benefit to Medicare beneficiaries.
Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage
of outpatient prescription drugs. Unlike Medicare Part A (hospital insurance) and Part B (medical insurance), Part D coverage
is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug
plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription
drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily
all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed
by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for
product candidates for which NeuBase receives regulatory approval. However, any negotiated prices for our product candidates covered
by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies
only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations
in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments
from non-government payors.
The distribution of pharmaceutical products is subject to additional
requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent
the unauthorized sale of pharmaceutical products.
The American Recovery and Reinvestment Act of 2009 provides
funding for the federal government to compare the effectiveness of different treatments for the same illness. A plan for the research
will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National
Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to Congress. Although
the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors,
it is not clear what effect, if any, the research will have on the sales of our product candidates, if any such product or the
condition that it is intended to treat is the subject of a clinical trial. It is also possible that comparative effectiveness
research demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates, if
approved. If third-party payors do not consider our products to be cost-effective compared to other available therapies, they
may not cover our product candidates after approval as a benefit under their plans or, if they do, the level of payment may not
be sufficient to allow us to sell our product candidates on a profitable basis.
In addition, in some foreign countries, the proposed pricing
for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country
to country. For example, the European Union provides options for its member states to restrict the range of medicinal products
for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human
use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect
controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country
that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing
arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of
the United States and generally tend to be priced significantly lower than in the United States.
As noted above, in the United States, we are subject to complex
laws and regulations pertaining to healthcare “fraud and abuse,” including, but not limited to, the federal Anti-Kickback
Statute, the federal False Claims Act, and other state and federal laws and regulations. The federal Anti-Kickback Statute makes
it illegal for any person, including a prescription drug manufacturer, or a party acting on its behalf, to knowingly and willfully
solicit, receive, offer or pay any remuneration that is intended to induce the referral of business, including the purchase, order
or prescription of a particular drug, or other good or service for which payment in whole or in part may be made under a federal
healthcare program, such as Medicare or Medicaid. Violations of this law are punishable by up to five years in prison, criminal
fines, administrative civil money penalties and exclusion from participation in federal healthcare programs. In addition, many
states have adopted laws similar to the federal Anti-Kickback Statute. Some of these state prohibitions apply to the referral
of patients for healthcare services reimbursed by any insurer, not just federal healthcare programs such as Medicare and Medicaid.
Due to the breadth of these federal and state anti-kickback laws, the absence of guidance in the form of regulations or court
decisions and the potential for additional legal or regulatory change in this area, it is possible that our future sales and marketing
practices or our future relationships with medical professionals might be challenged under anti-kickback laws, which could harm
us. Because we intend to commercialize product candidates that could be reimbursed under a federal healthcare program and other
governmental healthcare programs, we plan to develop a comprehensive compliance program that establishes internal controls to
facilitate adherence to the rules and program requirements to which we will or may become subject.
The federal False Claims Act prohibits anyone from knowingly
presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or
services, including drugs, that are false or fraudulent, claims for items or services not provided as claimed or claims for medically
unnecessary items or services. Although we would not submit claims directly to payors, manufacturers can be held liable under
these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate
billing or coding information to customers or promoting a product off-label. In addition, our future activities relating to the
reporting of wholesaler or estimated retail prices for our products, the reporting of prices used to calculate Medicaid rebate
information and other information affecting federal, state and third-party reimbursement for our product candidates, and the sale
and marketing of our product candidates, are subject to scrutiny under this law. For example, pharmaceutical companies have been
found liable under the federal False Claims Act in connection with their off-label promotion of drugs. Penalties for a federal
False Claims Act violation include three times the actual damages sustained by the government, plus mandatory civil penalties
of between $11,181 and $22,363 for each separate false claim, the potential for exclusion from participation in federal healthcare
programs and, although the federal False Claims Act is a civil statute, conduct that results in a federal False Claims Act violation
may also implicate various federal criminal statutes. If the government were to allege that we were, or convict us of, violating
these false claims laws, we could be subject to a substantial fine. In addition, private individuals have the ability to bring
actions under the federal False Claims Act and certain states have enacted laws modeled after the federal False Claims Act.
There are also an increasing number of state laws that require
manufacturers to make reports to states on pricing and marketing information. Many of these laws contain ambiguities as to what
is required to comply with the laws. In addition, as discussed below, a similar federal requirement requires manufacturers to
track and report to the federal government certain payments made to physicians and teaching hospitals in the previous calendar
year. These laws may affect our sales, marketing and other promotional activities by imposing administrative and compliance burdens
on us. In addition, given the lack of clarity with respect to these laws and their implementation, our reporting actions could
be subject to the penalty provisions of the pertinent state, and soon federal, authorities.
The failure to comply with regulatory requirements subjects
companies to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements
can result in criminal prosecution, fines or other penalties, injunctions, recall or seizure of products, total or partial suspension
of production, denial or withdrawal of product approvals or refusal to allow a company to enter into supply contracts, including
government contracts.
Changes in regulations, statutes or the interpretation of existing
regulations could impact our business in the future by requiring, for example: (1) changes to our manufacturing arrangements;
(2) additions or modifications to product labeling; (3) the recall or discontinuation of our products; or (4) additional record-keeping
requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.
Patient Protection and Affordable Care Act
In March 2010, the Patient Protection and Affordable Care Act,
as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “PPACA”), was enacted, which
includes measures that have or will significantly change the way healthcare is financed by both governmental and private insurers.
Among the provisions of the PPACA of greatest importance to the pharmaceutical industry are the following:
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The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have
in effect a national rebate agreement with the Secretary of the Department of Health and Human Services as a condition for
states to receive federal matching funds for the manufacturer’s covered outpatient drugs furnished to Medicaid patients.
Effective in 2010, the PPACA made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical
manufacturers’ rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs and
biologic agents to 23.1% of the average manufacturer prices (“AMP”) and adding a new rebate calculation for “line
extensions” (i.e., new formulations, such as extended release formulations) of solid oral dosage forms of branded products,
as well as potentially impacting their rebate liability by modifying the statutory definition of AMP. The PPACA also expanded
the universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical manufacturers to pay rebates on Medicaid
managed care utilization and by expanding the population potentially eligible for Medicaid drug benefits. The CMS have proposed
to expand Medicaid rebate liability to the territories of the United States as well. In addition, the PPACA provides for the
public availability of retail survey prices and certain weighted average AMPs under the Medicaid program. The implementation
of this requirement by the CMS may also provide for the public availability of pharmacy acquisition of cost data, which could
negatively impact our sales.
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In order for a pharmaceutical product to receive federal reimbursement under the Medicare Part
B and Medicaid programs or to be sold directly to U.S. government agencies, the manufacturer must extend discounts to entities
eligible to participate in the 340B drug pricing program. The required 340B discount on a given product is calculated based
on the AMP and Medicaid rebate amounts reported by the manufacturer. The PPACA expanded the types of entities eligible to
receive discounted 340B pricing, although, under the current state of the law, with the exception of children’s hospitals,
these newly-eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs when used for the orphan
indication. In addition, as 340B drug pricing is determined based on AMP and Medicaid rebate data, the revisions to the Medicaid
rebate formula and AMP definition described above could cause the required 340B discount to increase.
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The PPACA imposes a requirement on manufacturers of branded drugs and biologic agents to provide
a 50% discount off the negotiated price of branded drugs dispensed to Medicare Part D patients in the coverage gap (i.e.,
“donut hole”).
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The PPACA imposes an annual, nondeductible fee on any entity that manufactures or imports certain
branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain
government healthcare programs, although this fee would not apply to sales of certain products approved exclusively for orphan
indications.
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The PPACA requires pharmaceutical manufacturers to track certain financial arrangements with
physicians and teaching hospitals, including any “transfer of value” made or distributed to such entities, as
well as any investment interests held by physicians and their immediate family members. Manufacturers are required to track
this information and were required to make their first reports in March 2014. The information reported is publicly available
on a searchable website.
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As of 2010, a new Patient-Centered Outcomes Research Institute was established pursuant to the
PPACA to oversee, identify priorities in and conduct comparative clinical effectiveness research, along with funding for such
research. The research conducted by the Patient-Centered Outcomes Research Institute may affect the market for certain pharmaceutical
products.
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The PPACA created the Independent Payment Advisory Board, which has the authority to recommend
certain changes to the Medicare program to reduce expenditures by the program that could result in reduced payments for prescription
drugs. Under certain circumstances, these recommendations will become law unless Congress enacts legislation that will achieve
the same or greater Medicare cost savings.
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The PPACA established the Center for Medicare and Medicaid Innovation within CMS to test innovative
payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
Funding has been allocated to support the mission of the Center for Medicare and Medicaid Innovation from 2011 to 2019.
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Many of the details regarding the implementation of the PPACA
are yet to be determined, and, at this time, the full effect of the PPACA on our business remains unclear. Further, there have
been recent public announcements by members of the U.S. Congress, President Trump and his administration regarding their plans
to repeal and replace the PPACA. For example, on December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act
of 2017, which, among other things, eliminated the individual mandate requiring most Americans (other than those who qualify for
a hardship exemption) to carry a minimum level of health coverage, effective January 1, 2019. We cannot predict the ultimate form
or timing of any repeal or replacement of the PPACA or the effect such a repeal or replacement would have on our business.
Pediatric Exclusivity and Pediatric Use
Under the Best Pharmaceuticals for Children Act (the “BPCA”),
certain drugs may obtain an additional six months of exclusivity if the sponsor submits information requested in writing by the
FDA (a “Written Request”) relating to the use of the active moiety of the drug in children. Conditions for exclusivity
include the FDA’s determination that information relating to the use of a new drug in the pediatric population may produce
health benefits in that population, the FDA making a written request for pediatric studies and the applicant agreeing to perform,
and reporting on, the requested studies within the statutory timeframe. The FDA may not issue a Written Request for studies on
unapproved or approved indications or where it determines that information relating to the use of a drug in a pediatric population,
or part of the pediatric population, may not produce health benefits in that population. Applications under the BPCA are treated
as priority applications, with all of the benefits that designation confers.
We have not received a Written Request for such pediatric studies,
although we may ask the FDA to issue a Written Request for such studies in the future. To receive the six-month pediatric market
exclusivity, we would need to receive a Written Request from the FDA, conduct the requested studies in accordance with a written
agreement with the FDA or, if there is no written agreement, in accordance with commonly accepted scientific principles, and submit
reports of the studies. A Written Request may include studies for indications that are not currently in the labeling if the FDA
determines that such information will benefit the public health. The FDA will accept the reports upon its determination that the
studies were conducted in accordance with, and are responsive to, the original Written Request or commonly accepted scientific
principles, as appropriate, and that the reports comply with the FDA’s filing requirements.
Under the Pediatric Research Equity Act of 2003 (the “PREA”),
an NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the drug product for
the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric
subpopulation for which the product is safe and effective. The PREA also authorizes the FDA to require holders of approved NDAs
for marketed drugs to conduct pediatric studies under certain circumstances. With the enactment of the Food and Drug Administration
Safety and Innovation Act (the “FDASIA”), in 2012, sponsors must also submit pediatric study plans prior to the assessment
data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including
study objectives and design, any deferral or waiver requests, and other information required by regulation. The applicant, the
FDA and the FDA’s internal review committee must then review the information submitted, consult with each other and agree
upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.
The FDA may, on its own initiative or at the request of the
applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults,
or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests
and requests for extension of deferrals are contained in the FDASIA. Unless otherwise required by regulation, the pediatric data
requirements do not apply to products with orphan designation.
Employees
As of January 7, 2020,
we had nine full-time employees in the United States. None of our employees are represented by a collective bargaining agreement. We
believe that we have a good relationship with our employees.
Corporate Information
We were incorporated under the laws of the State of Delaware
on August 4, 2009, as successor to BBM Holdings, Inc. (formerly known as Prime Resource, Inc., which was organized March 29, 2002
as a Utah corporation) pursuant to a reincorporation merger. On August 4, 2009, we reincorporated in Delaware as “Ohr Pharmaceutical,
Inc.” On July 12, 2019, we completed the Merger with NeuBase Corporation (formerly known as NeuBase Therapeutics, Inc.),
a Delaware corporation, and, upon completion of the Merger, we changed our name to “NeuBase Therapeutics, Inc.” Shares
of our common stock commenced trading on the Nasdaq Capital Market under the ticker symbol “NBSE” as of market open
on July 15, 2019.
Address
Our principal executive offices are located at 700 Technology
Drive, Third Floor, Pittsburgh, PA 15219, and our telephone number is (646) 450-1790. Our website is located at www.neubasetherapeutics.com.
Any information contained on, or that can be accessed through, our website is not incorporated by reference into, nor is it in
any way part of this Form 10-K.
Available Information
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission (the “SEC”), and we have an Internet website address
at www.neubasetherapeutics.com. We make available free of charge on our Internet website address our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Sections 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as our proxy statements
as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. You may also
obtain copies of such documents from the SEC’s website at http://www.sec.gov.
ITEM 1A. RISK
FACTORS
We operate in a dynamic and rapidly changing environment
that involves numerous risks and uncertainties. Certain factors may have a material adverse effect on our business, prospects,
financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business,
we encourage you to consider the following discussion of risk factors, in its entirety, in addition to other information contained
in this Annual Report on Form 10-K and our other public filings with the Securities and Exchange Commission (the “SEC”).
Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects,
financial condition and results of operations.
Risks Relating to the Company
We are a preclinical-stage company, have a very limited
operating history, are not currently profitable, do not expect to become profitable in the near future and may never become profitable.
We are a preclinical-stage biotechnology company specializing
in the discovery and development of a class of deoxy-ribonucleic acid and ribonucleic acid-targeted drugs called peptide nucleic
acids, which will not change as a result of the merger between Ohr Pharmaceutical, Inc., a Delaware corporation (“Ohr”),
and NeuBase Therapeutics, Inc., a Delaware corporation (“Legacy NeuBase”), in accordance with the terms of the Agreement
and Plan of Merger Reorganization entered into on January 2, 2019 (the “Merger Agreement”). Since our incorporation,
we have focused primarily on the development of our proprietary gamma Peptide-nucleic acid AnTisense OLigonucleotide (“PATrOL™”)
platform and preclinical-stage therapeutic candidates. Our platform technology and all of our therapeutic candidates are in the
preclinical development stage, and we have not initiated clinical trials for any of our product candidates, nor have any products
been approved for commercial sale and we have not generated any revenue. To date, we have not completed a clinical trial (including
a pivotal clinical trial), obtained marketing approval for any product candidates, manufactured a commercial scale product or
arranged for a third party to do so on our behalf, or conducted sales and marketing activities necessary for successful product
commercialization. Drug development is also a highly uncertain undertaking and involves a substantial degree of risk.
As a result, we have no meaningful historical operations upon
which to evaluate our business and prospects and have not yet demonstrated an ability to obtain marketing approval for any of
our product candidates or successfully overcome the risks and uncertainties frequently encountered by companies in the pharmaceutical
industry. We also have not generated any revenues from collaboration and licensing agreements or product sales to date and continue
to incur research and development and other expenses. Our prior losses, combined with expected future losses, have had and will
continue to have an adverse effect on our stockholders’ deficit and working capital, and our future success is subject to
significant uncertainty.
For the foreseeable future, we expect to continue to incur
losses, which will increase significantly from recent historical levels as we expand our drug development activities, seek regulatory
approvals for our product candidates and begin to commercialize them if they are approved by the U.S. Food and Drug Administration
(the “FDA”), the European Medicines Agency (the “EMA”) or comparable foreign authorities. Even if we succeed
in developing and commercializing one or more product candidates, we may never become profitable.
The approach we are taking to discover and develop nucleic
acid therapeutics is novel and may never lead to marketable products.
We have concentrated our efforts and research and development
activities on nucleic acid therapeutics and our synthetic chemistry drug discovery and development platform comprised of peptide
nucleic acids with natural and engineered nucleotides. Our future success depends on the successful development and manufacturing
of such therapeutics and the effectiveness of our platform. The scientific discoveries that form the basis for our efforts to
discover and develop new drugs, including our discoveries about the relationships between oligonucleotide stereochemistry and
pharmacology, are relatively new. The scientific evidence to support the feasibility of developing drugs based on these discoveries
or peptide nucleic acids (“PNAs”) in general is limited. Skepticism as to the feasibility of developing nucleic acid
therapeutics and PNAs generally has been, and may continue to be, expressed in scientific literature. In addition, decisions by,
and negative results of, other companies with respect to their oligonucleotide development efforts may increase skepticism in
the marketplace regarding the potential for oligonucleotides and PNAs.
Relatively few nucleic acid therapeutic product candidates
have been tested in humans, and a number of clinical trials for such therapeutics conducted by other companies have not been successful.
Few nucleic acid therapeutics have received regulatory approval. The pharmacological properties ascribed to the investigational
compounds we are testing in laboratory studies may not be positively demonstrated in clinical trials in patients, and they may
interact with human biological systems in unforeseen, ineffective or harmful ways. If our nucleic acid product candidates prove
to be ineffective, unsafe or commercially unviable, our entire platform and pipeline would have little, if any, value, which would
substantially harm our business, financial condition, results of operations and prospects.
In addition, our approach, which focuses on using nucleic acid
therapeutics for drug development, as opposed to multiple or other, more advanced proven technologies, may expose us to additional
financial risks and make it more difficult to raise additional capital if we are not successful in developing a nucleic acid therapeutic
that is timely and cost effective to manufacture and achieves proof of concept in animal models, desired tissue distribution,
selectivity for the target, and/or regulatory approval. Because our programs are all in the research or preclinical stage, we
have not yet been able to assess safety in humans, and there may be long-term effects from treatment with any product candidates
that we develop using our platform that we cannot predict at this time. Any product candidates the Company may develop will act
at the level of deoxyribonucleic acid (“DNA”) or ribonucleic acid (“RNA”), and because animal DNA and
RNA often differs from human DNA or RNA at the sequence level, in its regulation and degradation, secondary and tertiary structural
conformations and ultimately in being translated into proteins with varying amino acid sequences conformations and functions,
testing of our product candidates in animal models may not be predictive of the results we observe in human clinical trials of
our product candidates for either safety or efficacy. Also, animal models may not exist for some of the diseases we choose to
pursue in our programs. As a result of these factors, it is more difficult for us to predict the time and cost of product candidate
development, and we cannot predict whether the application of our gene silencing technology, or any similar or competitive gene
silencing technologies, will result in the identification, development and regulatory approval of any products. There can be no
assurance that any development problems we experience in the future related to our gene silencing technology or any of our research
programs will not cause significant delays or unanticipated costs, or that such development problems can be solved. Should we
encounter development problems, including unfavorable preclinical or clinical trial results, the FDA and foreign regulatory authorities
may refuse to approve our product candidates, or may require additional information, tests or trials, which could significantly
delay product development and significantly increase our development costs. Moreover, even if we are able to provide the requested
information or trials to the FDA, there would be no guarantee that the FDA would accept them or approve our product candidates.
We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process or developing or qualifying
and validating product release assays, other testing and manufacturing methods, and our equipment and facilities in a timely manner,
which may prevent us from completing our clinical trials or commercializing our product candidates on a timely or profitable basis,
if at all. Any of these factors may prevent us from completing our preclinical studies or any clinical trials that we may initiate
or from commercializing any product candidates we may develop on a timely or profitable basis, if at all.
We are highly dependent on the success of our initial
product candidates targeting rare genetic diseases and our platform technology in general, and we cannot be certain that any of
them will receive regulatory approval or be commercialized.
We have spent time, money and effort on the licensing and development
of our core asset: our PATrOL™ platform. To date, we have not submitted an Investigational New Drug application (“IND”)
to the FDA, and no clinical trials have commenced for any of our product candidates. All of our product candidates will require
additional development, including further preclinical studies and bioanalytic method development as well as clinical trials to
evaluate their toxicology, carcinogenicity and pharmacokinetics, efficacy, and optimize their formulation, and regulatory clearances
before they can be commercialized. Positive results obtained during early development do not necessarily mean later development
will succeed or that regulatory clearances will be obtained. Our drug development efforts may not lead to commercial drugs, either
because our product candidates or our PATrOL™ platform are not deemed safe and effective, because of competitive or market
forces, intellectual property issues or because we have inadequate financial or other resources to advance our product candidates
through the clinical development and approval processes. If any of our product candidates, or our PATrOL™ platform, fail
to demonstrate safety or efficacy at any time or during any phase of development, we would experience potentially significant
delays in, or be required to abandon, development of the product candidate.
We do not anticipate that any of our current product candidates
will be eligible to receive regulatory approval from the FDA, the EMA or comparable foreign authorities and begin commercialization
for a number of years, if ever. Even if we ultimately receive regulatory approval for any of these product candidates, we or our
potential future partners, if any, may be unable to commercialize them successfully for a variety of reasons. These include, for
example, the availability of alternative treatments, lack of cost-effectiveness, the cost of manufacturing the product on a commercial
scale and competition with other drugs. The success of our product candidates and our PATrOL™ platform may also be limited
by the prevalence and severity of any adverse side effects. If we fail to commercialize one or more of our current product candidates,
we may be unable to generate sufficient revenues to attain or maintain profitability, and our financial condition may decline.
If development of our candidates does not produce favorable
results, we and our collaborators, if any, may be unable to commercialize these products.
To receive regulatory approval for the commercialization of
our use of the PATrOL™ platform, or any product candidates that we may develop, adequate and well-controlled clinical trials
must be conducted to demonstrate safety and efficacy in humans to the satisfaction of the FDA, the EMA and comparable foreign
authorities. In order to support marketing approval, these agencies typically require successful results in one or more Phase
III clinical trials, which our current product candidates have not yet reached and may never reach. The development process is
expensive, can take many years and has an uncertain outcome. Failure can occur at any stage of the process. We may experience
numerous unforeseen events during, or as a result of, the development process that could delay or prevent commercialization of
our current or future product candidates, including the following:
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preclinical studies conducted with product candidates for potential clinical development to evaluate
their toxicology, carcinogenicity and pharmacokinetics and optimize their formulation, among other things, may produce unfavorable
results;
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patient recruitment and enrollment in clinical trials may be slower than we anticipate;
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clinical trials may produce negative or inconclusive results;
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costs of development may be greater than we anticipate;
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the potential advantages of the PATrOL™-enabled drug candidates may not materialize and
thus would confer no benefits to patients over other parties’ products that may emerge;
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our product candidates or our PATrOL™ platform may cause undesirable side effects that
delay or preclude regulatory approval or limit their commercial use or market acceptance, if approved;
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collaborators who may be responsible for the development of our product candidates may not devote
sufficient resources to these clinical trials or other preclinical studies of these candidates or conduct them in a timely
manner; or
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we may face delays in obtaining regulatory approvals to commence one or more clinical trials.
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Additionally, because our technology potentially involves gene
silencing via genome binding and/or editing across multiple cell and tissue types, we are subject to many of the challenges and
risks that advanced therapies, such as gene therapies, face, including:
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regulatory requirements governing gene and cell therapy products have changed frequently and
may continue to change in the future;
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improper modification of a gene sequence in a patient’s genome could lead to lymphoma,
leukemia or other cancers, or other aberrantly functioning cells; and
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the FDA recommends a follow-up observation period of 15 years or longer for all patients who
receive treatment using gene therapies, and we may need to adopt and support such an observation period for our product candidates.
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Success in early development does not mean that later development
will be successful because, for example, product candidates in later-stage clinical trials may fail to demonstrate sufficient
safety and efficacy despite having progressed through initial clinical trials.
Furthermore, we have licensed or acquired virtually all of
the intellectual property related to our product candidates from Carnegie Mellon University (“CMU”). Much of our preclinical
studies and other analyses performed to date with respect to our product candidates have been conducted by their original owners
or collaborators. Therefore, as a company, we have limited experience in conducting research on our platform technology and preclinical
trials for our product candidates. Since our experience with our platform technology and product candidates is limited, we will
need to train our existing personnel or hire additional personnel in order to successfully administer and manage our preclinical
studies and clinical trials as anticipated, which may result in delays in completing such anticipated preclinical trials and clinical
studies.
We currently do not have strategic collaborations in place
for clinical development of our platform technology and any of our current product candidates. Therefore, in the future, we or
any potential future collaborative partner will be responsible for establishing the targeted endpoints and goals for development
of our product candidates. These targeted endpoints and goals may be inadequate to demonstrate the safety and efficacy levels
required for regulatory approvals. Even if we believe data collected during the development of our product candidates are promising,
such data may not be sufficient to support marketing approval by the FDA, the EMA or comparable foreign authorities. Further,
data generated during development can be interpreted in different ways, and the FDA, the EMA or comparable foreign authorities
may interpret such data in different ways than we or our collaborators. Our failure to adequately demonstrate the safety and efficacy
of our platform technology and any of our product candidates would prevent our receipt of regulatory approval, and such failure
would ultimately prevent the potential commercialization of these product candidates.
Since we do not currently possess the resources necessary to
independently develop and commercialize our product candidates or any other product candidates that we may develop, we may seek
to enter into collaborative agreements to assist in the development and potential future commercialization of some or all of these
assets as a component of our strategic plan. Our discussions with potential collaborators, however, may not lead to the establishment
of collaborations on acceptable terms, if at all, or it may take longer than expected to establish new collaborations, leading
to development and potential commercialization delays, which would adversely affect our business, financial condition and results
of operations.
We expect to continue to incur significant research and
development expenses, which may make it difficult for us to attain profitability.
We expect to expend substantial funds in research and development,
including preclinical studies and clinical trials for our platform technology and product candidates, and to manufacture and market
any product candidates in the event they are approved for commercial sale. We will likely need additional funding to develop or
acquire complementary companies, technologies and assets, as well as for working capital requirements and other operating and
general corporate purposes. Moreover, an increase in our headcount would dramatically increase our costs in the near and long-term.
Such spending may not yield any commercially viable products.
Due to our limited financial and managerial resources, we must focus on a limited number of research programs and product candidates
and on specific indications. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products
or profitable market opportunities.
Because the successful development of our product candidates
is uncertain, we are unable to precisely estimate the actual funds we will require to develop and potentially commercialize them.
In addition, we may not be able to generate sufficient revenue, even if we are able to commercialize any of our product candidates,
to become profitable.
We may expend our limited resources to pursue a particular
product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for
which there is a greater likelihood of success.
Because we have limited financial and managerial resources,
we will initially develop our lead product candidate for particular rare genetic diseases. As a result, we may forego or delay
pursuit of opportunities in other types of diseases that may prove to have greater treatment potential. Likewise, we may forego
or delay the pursuit of opportunities with other potential product candidates that may prove to have greater commercial potential.
Our resource allocation decisions may cause us to fail to capitalize
on viable commercial products or profitable market opportunities. Our spending on current and future research and development
programs and product candidates for specific indications may not yield any commercially viable product candidates. If we do not
accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights
to that product candidate through collaboration, licensing or other similar arrangements in cases in which it would have been
more advantageous for us to retain sole development and commercialization rights to the product candidate.
Given our lack of current cash flow, we will need to
raise additional capital; however, it may be unavailable to us or, even if capital is obtained, may cause dilution or place significant
restrictions on our ability to operate our business.
Since we will be unable to generate sufficient, if any, cash
flow to fund our operations for the foreseeable future, we will need to seek additional equity or debt financing to provide the
capital required to maintain or expand our operations.
There can be no assurance that we will be able to raise sufficient
additional capital on acceptable terms or at all. If such additional financing is not available on satisfactory terms, or is not
available in sufficient amounts, we may be required to delay, limit or eliminate the development of business opportunities, and
our ability to achieve our business objectives, our competitiveness, and our business, financial condition and results of operations
may be materially adversely affected. In addition, we may be required to grant rights to develop and market product candidates
that we would otherwise prefer to develop and market ourselves. Our inability to fund our business could lead to the loss of your
investment.
Our future capital requirements will depend on many factors,
including, but not limited to:
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the scope, rate of progress, results and cost of our preclinical studies, clinical trials and
other related activities;
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our ability to establish and maintain strategic collaborations, licensing or other arrangements
and the financial terms of such arrangements;
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the timing of, and the costs involved in, obtaining regulatory approvals for any of our current
or future product candidates;
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the number and characteristics of the product candidates it seeks to develop or commercialize;
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the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product
candidates;
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the cost of commercialization activities if any of our current or future product candidates are
approved for sale, including marketing, sales and distribution costs;
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the expenses needed to attract and retain skilled personnel;
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the costs associated with being a public company;
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the amount of revenue, if any, received from commercial sales of our product candidates, should
any of our product candidates receive marketing approval; and
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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible
patent claims, including litigation costs and the outcome of any such litigation.
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Any additional capital efforts may divert our management from
their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. Moreover,
if we raise additional capital by issuing equity securities, the percentage ownership of our existing stockholders may be reduced,
and accordingly these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights,
preferences and privileges senior to those of our common stock. Given our need for cash and that equity issuances are the most
common type of fundraising for similarly situated companies, the risk of dilution is particularly significant for our stockholders.
Furthermore, the incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree
to certain restrictive covenants, such as limitations on our ability to incur additional debt and other operating restrictions
that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements
with collaborators or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights
to some of our product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect
on our business, operating results and prospects.
The report of our independent registered public accounting
firm expresses substantial doubt about our ability to continue as a going concern. Such “going concern” opinion could
impair our ability to obtain financing.
Our independent registered public accounting firm, CohnReznick
LLP, has indicated in their report on our financial statements for the fiscal year ended September 30, 2019 that conditions exist
that raise substantial doubt about our ability to continue as a going concern due to our recurring losses from operations. A “going
concern” opinion could impair our ability to finance our operations through the sale of equity, incurring debt, or other
financing alternatives. Our ability to continue as a going concern will depend upon the availability and terms of future funding.
If we are unable to achieve this goal, our business would be jeopardized and we may not be able to continue. If we ceased operations,
it is likely that all of our investors would lose their investment.
Our efforts to discover product candidates beyond our
current product candidates may not succeed, and any product candidates we recommend for clinical development may not actually
begin clinical trials.
We intend to use our technology, including our licensed technology,
knowledge and expertise, to develop novel drug candidates to address some of the world’s most devastating and costly central
nervous system, muscular, and other disorders, including orphan genetic and oncology indications. We intend to expand our existing
pipeline of core assets by advancing drug candidate compounds from discovery programs into clinical development. However, the
process of researching and discovering drug candidate compounds is expensive, time-consuming and unpredictable. Data from our
current preclinical programs may not support the clinical development of our lead compounds or other compounds from these programs,
and we may not identify any additional drug compounds suitable for recommendation for clinical development. Moreover, any drug
compounds we recommend for clinical development may not demonstrate, through preclinical studies, indications of safety and potential
efficacy that would support advancement into clinical trials. Such findings would potentially impede our ability to maintain or
expand our clinical development pipeline. Our ability to identify new drug compounds and advance them into clinical development
also depends upon our ability to fund our research and development operations, and we cannot be certain that additional funding
will be available on acceptable terms, or at all.
We are significantly dependent on the success of our
PATrOL™ platform and our product candidates based on this platform. A failure of any product candidate based on this platform
in clinical development would adversely affect our business and may require us to discontinue development of other product candidates
based on the same therapeutic approach.
We have invested, and we expect to continue to invest, significant
efforts and financial resources in the development of product candidates based on our PATrOL™ platform. Our ability to generate
meaningful revenue, which may not occur for the foreseeable future, if ever, will depend heavily on the successful development,
regulatory approval and commercialization of one or more of these product candidates using our PATrOL™ platform. We will
not be able to develop new product candidates if it is found that the PATrOL™ platform does not work or creates product
candidates that are not safe for use in humans. Since all of our product candidates in our current pipeline are based on our PATrOL™
platform, if any product candidate fails in development as a result of an underlying problem with our PATrOL™ platform,
then we may be required to discontinue development of all product candidates that are based on our therapeutic approach. If we
were required to discontinue the development of such product candidates based on the PATrOL™ platform, or if any of them
were to fail to receive regulatory approval or achieve sufficient market acceptance, we could be prevented from or significantly
delayed in achieving profitability. We can provide no assurance that we would be successful at developing other product candidates
based on an alternative therapeutic approach from our PATrOL™ platform.
The pharmaceutical market and biotechnology industry
are intensely competitive and involve a high degree of risk. If we are unable to compete effectively with existing drugs, new
treatment methods and new technologies, we may be unable to commercialize successfully any drug candidates that we develop.
The pharmaceutical market and biotechnology industry are intensely
competitive and rapidly changing. Many large pharmaceutical and biotechnology companies, academic institutions, governmental agencies
and other public and private research organizations, both in the U.S. and worldwide, are pursuing the development of novel drugs
for the same diseases that we are targeting or expect to target. Many of our competitors have, either alone or with strategic
partners:
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much greater financial, research, technical and human resources than we have at every
stage of the discovery, development, manufacture and commercialization of products and product candidates;
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more extensive experience in designing and conducting preclinical studies and clinical trials,
obtaining regulatory approvals, and in manufacturing, marketing and selling pharmaceutical products and product candidates;
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product candidates that are based on previously tested or accepted technologies;
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products and product candidates that have been approved or are in late stages of development;
and
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collaborative arrangements in our target markets with leading companies and research institutions.
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We will face intense competition from drugs that have already
been approved and accepted by the medical community for the treatment of the conditions for which we may develop drug candidates.
We also expect to face competition from new drugs that enter the market. We believe there are a significant number of drugs currently
under development that may become commercially available in the future, for the treatment of conditions for which we may try to
develop drugs. These drugs may be more effective, safer, less expensive, introduced to market earlier, or marketed and sold more
effectively or on a more cost-effective basis, than any product candidates we develop. It is possible that the potential advantages
of PATrOL™-derived therapeutic candidates (including, among other potential advantages, the ability to systemically deliver
drugs and get broad tissue distribution and penetration across the blood-brain barrier, minimal to no innate or adaptive immune
responses after single dose or multiple-dose administration, preferential selectivity to mutant targets, and dose schedules to
address the disease appropriately or that is viable in the marketplace) do not materialize.
Our competitors may develop or commercialize products with
significant advantages over any product candidates we are able to develop and commercialize based on many different factors, including:
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the safety and effectiveness of our product candidates relative
to alternative therapies, if any;
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the ease with which our product candidates can be administered and the
extent to which patients accept relatively new routes of administration;
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the timing and scope of regulatory approvals for these product candidates;
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the availability and cost of manufacturing, marketing and sales capabilities;
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price;
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reimbursement coverage from governments and other third-party payors; and
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patent position and intellectual property protection.
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Our commercial opportunity could be reduced or eliminated if
our competitors develop and commercialize products that are viewed as safer, more effective, more convenient or less expensive
than any products that we may develop. Our competitors may also obtain FDA or other regulatory approval for their competing products
more rapidly than we may obtain approval for any of our product candidates, which could result in our competitors establishing
a strong market position before we are able to enter the market. Further, we expect that we will also compete with others when
recruiting clinical trial sites and subjects for our clinical trials and when recruiting and retaining qualified scientific and
management personnel.
While there are currently no approved treatments available
to slow the progression of Huntington's Disease (“HD”), publicly available information shows that a number of companies
are pursuing product candidates related to HD. These include an investigational drug in Phase III clinical development, several
ongoing clinical and preclinical programs targeting the underlying disease in HD and the development of drugs focused on treating
the symptoms associated with HD. Similarly, both companies and non-commercial sponsors are investigating agents and conducting
research, clinical trials and controlled studies regarding different treatments for Myotonic Dystrophy. The success of any of
these competitors could reduce or eliminate our commercial opportunity.
Any collaboration arrangement that we may enter into
in the future may not be successful, which could adversely affect our ability to develop and commercialize our current and potential
future product candidates.
We may seek collaboration arrangements with pharmaceutical
companies for the development or commercialization of our current and potential future product candidates. To the extent that
we decide to enter into collaboration agreements, we will face significant competition in seeking appropriate collaborators. Moreover,
collaboration arrangements are complex and time consuming to negotiate, execute and implement. We may not be successful in our
efforts to establish and implement collaborations or other alternative arrangements should we choose to enter into such arrangements,
and the terms of the arrangements may not be favorable to us. If and when we collaborate with a third party for development and
commercialization of a product candidate, we can expect to relinquish some or all of the control over the future success of that
product candidate to the third party. The success of our collaboration arrangements will depend heavily on the efforts and activities
of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will
apply to these collaborations. As such, our inability to control our collaborators, and the potentially adverse results of our
collaborators, may materially and adversely affect our product candidates and, more generally, our PATrOL™ platform, and
we may not be able to conduct our program in the manner or on the time schedule it currently contemplates, which could negatively
impact our business.
If our potential future collaborations do not result in the
successful discovery, development and commercialization of products or if one of our collaborators terminates our agreement with
us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive
the funding we expect under these agreements, our development of our platform technology and product candidates could be delayed
and we may need additional resources to develop product candidates and our technology.
Finally, disagreements between parties to a collaboration arrangement
can lead to delays in developing or commercializing the applicable product candidate and can be difficult to resolve in a mutually
beneficial manner. In some cases, collaborations with biopharmaceutical companies and other third parties are terminated or allowed
to expire by the other party. Any such termination or expiration could adversely affect our business, financial condition and
results of operations.
We, or any future collaborators, may not be able to obtain
orphan drug designation or orphan drug exclusivity for our product candidates.
Regulatory authorities in some jurisdictions, including the
U.S. and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the
FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally
defined as a patient population of fewer than 200,000 individuals annually in the U.S. In the U.S. and Europe, obtaining orphan
drug approval may allow us to obtain financial incentives, such as an extended period of exclusivity during which only we are
allowed to market the orphan drug for the orphan indications that we are developing. While we may seek orphan drug designation
from the FDA for any of our product candidates, we, or any future collaborators, may not be granted orphan drug designations for
our product candidates in the U.S. or in other jurisdictions.
Even if we or any future collaborators obtain orphan drug designation
for a product candidate, we or such collaborators may not be able to obtain orphan drug exclusivity for that product candidate.
Generally, a product with orphan drug designation only becomes entitled to orphan drug exclusivity if it receives the first marketing
approval for the indication for which it has such designation, in which case the FDA or the EMA will be precluded from approving
another marketing application for the same drug for that indication for the applicable exclusivity period. The applicable exclusivity
period is seven years in the U.S. and ten years in Europe. The European exclusivity period can be reduced to six years if a drug
no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity
is no longer justified. Orphan drug exclusivity may be lost if the FDA or the EMA determines that the request for designation
was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients
with the rare disease or condition.
Even if we or any future collaborators obtain orphan drug exclusivity
for a product, that exclusivity may not effectively protect the product from competition because FDA has taken the position that,
under certain circumstances, another drug with the same active chemical and pharmacological characteristics, or moiety, can be
approved for the same condition. Specifically, the FDA’s regulations provide that it can approve another drug with the same
active moiety for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be
safer, more effective or makes a major contribution to patient care.
We are subject to a multitude of manufacturing risks,
any of which could substantially increase our costs and limit supply of our product candidates.
The process of manufacturing our product candidates is complex,
highly regulated, and subject to several risks. For example, the process of manufacturing our product candidates is extremely
susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, or vendor
or operator error. Even minor deviations from normal manufacturing processes for any of our product candidates could result in
reduced production yields, product defects, and other supply disruptions. If microbial, viral, or other contaminations are discovered
in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities
may need to be closed for an extended period of time to investigate and remedy the contamination. In addition, the manufacturing
facilities in which our product candidates are made could be adversely affected by equipment failures, labor shortages, natural
disasters, power failures and numerous other factors. For instance, our therapeutic molecules are complex and comprised of both
peptides and nucleic acids, and it may be difficult or impossible to find Good Laboratory Practice- (“GLP”) and Current
Good Manufacturing Practice- (“cGMP”) grade manufacturers, manufacturing may be cost prohibitive, we or our third-party
manufacturers may not be able to manufacture product candidates in a timely manner, or manufacturing may not be available to fulfill
regulatory requirements. In addition, we or our third-party manufacturers may not be able to manufacture our product candidates
in a timely manner.
In addition, any adverse developments affecting manufacturing
operations for our product candidates may result in shipment delays, inventory shortages, lot failures, withdrawals or recalls,
or other interruptions in the supply of our product candidates. We also may need to take inventory write-offs and incur other
charges and expenses for product candidates that fail to meet specifications, undertake costly remediation efforts or seek costlier
manufacturing alternatives.
We rely, and will continue to rely, predominantly, on
third parties to manufacture our preclinical and clinical drug supplies and our business, financial condition and results of operations
could be harmed if those third parties fail to provide us with sufficient quantities of drug product, or fail to do so at acceptable
quality levels, prices, or timelines.
We have the capability internally to manufacture small quantities
of our drugs for preclinical studies. However, we do not currently have, nor do we plan to acquire, the infrastructure or capability
internally to manufacture our clinical drug supplies for use in our clinical trials, and we lack the resources and the capability
to manufacture any of our product candidates on a clinical or commercial scale. We rely on our manufacturers to purchase from
third-party suppliers the materials necessary to produce our product candidates for our clinical trials. There are a limited number
of suppliers for raw materials that we use to manufacture our product candidates, and there may be a need to identify alternate
suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidates for
our clinical trials, and, if approved, ultimately for commercial sale. We do not have any control over the process or timing of
the acquisition of these raw materials by our manufacturers. Any significant delay or discontinuity in the supply of a product
candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a third-party manufacturer
could considerably delay completion of our clinical trials, product testing and potential regulatory approval of our product candidates,
which could harm our business, financial condition and results of operations.
If we are unable to develop our own commercial organization
or enter into agreements with third parties to sell and market our product candidates, we may be unable to generate significant
revenues.
We do not have a sales and marketing organization, and we have
no experience as a company in the sales, marketing and distribution of pharmaceutical products. If any of our product candidates
are approved for commercialization, we may be required to develop our own sales, marketing and distribution capabilities, or make
arrangements with a third party to perform sales and marketing services. Developing a sales force for any resulting product or
any product resulting from any of our other product candidates is expensive and time consuming and could delay any product launch.
We may be unable to establish and manage an effective sales force in a timely or cost-effective manner, if at all, and any sales
force we do establish may not be capable of generating sufficient demand for our product candidates. To the extent that we enter
into arrangements with collaborators or other third parties to perform sales and marketing services, our product revenues are
likely to be lower than if we marketed and sold our product candidates independently. If we are unable to establish adequate sales
and marketing capabilities, independently or with others, we may not be able to generate significant revenues and may not become
profitable.
The commercial success of our product candidates depends
upon their market acceptance among physicians, patients, healthcare payors and the medical community.
Even if our product candidates obtain regulatory approval,
our products, if any, may not gain market acceptance among physicians, patients, healthcare payors and the medical community.
The degree of market acceptance of any of our approved product candidates will depend on a number of factors, including:
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the effectiveness of our approved product candidates as compared to currently available products;
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patient willingness to adopt our approved product candidates in place of current therapies;
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our ability to provide acceptable evidence of safety and efficacy;
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relative convenience and ease of administration;
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the prevalence and severity of any adverse side effects;
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restrictions on use in combination with other products;
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availability of alternative treatments;
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pricing and cost-effectiveness assuming either competitive or potential premium pricing requirements,
based on the profile of our product candidates and target markets;
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effectiveness of our or our partners’ sales and marketing strategy;
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our ability to obtain sufficient third-party coverage or reimbursement; and
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potential product liability claims.
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In addition, the potential market opportunity for our product
candidates is difficult to precisely estimate. Our estimates of the potential market opportunity for our product candidates include
several key assumptions based on our industry knowledge, industry publications, third-party research reports and other surveys.
Independent sources have not verified all of our assumptions. If any of these assumptions proves to be inaccurate, then the actual
market for our product candidates could be smaller than our estimates of our potential market opportunity. If the actual market
for our product candidates is smaller than we expect, our product revenue may be limited, it may be harder than expected to raise
funds and it may be more difficult for us to achieve or maintain profitability. If we fail to achieve market acceptance of our
product candidates in the U.S. and abroad, our revenue will be limited and it will be more difficult to achieve profitability.
If we fail to obtain and sustain an adequate level of
reimbursement for our potential products by third-party payors, potential future sales would be materially adversely affected.
There will be no viable commercial market for our product candidates,
if approved, without reimbursement from third-party payors. Reimbursement policies may be affected by future healthcare reform
measures. We cannot be certain that reimbursement will be available for our current product candidates or any other product candidate
we may develop. Additionally, even if there is a viable commercial market, if the level of reimbursement is below our expectations,
our anticipated revenue and gross margins will be adversely affected.
Third-party payors, such as government or private healthcare
insurers, carefully review and increasingly question and challenge the coverage of and the prices charged for drugs. Reimbursement
rates from private health insurance companies vary depending on the company, the insurance plan and other factors. Reimbursement
rates may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for
other services. There is a current trend in the U.S. healthcare industry toward cost containment.
Large public and private payors, managed care organizations,
group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of,
and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, may question the coverage of,
and challenge the prices charged for, medical products and services, and many third-party payors limit coverage of or reimbursement
for newly approved healthcare products. In particular, third-party payors may limit the covered indications. Cost-control initiatives
could decrease the price we might establish for products, which could result in product revenues being lower than anticipated.
We believe our drugs will be priced significantly higher than existing generic drugs and consistent with current branded drugs.
If we are unable to show a significant benefit relative to existing generic drugs, Medicare, Medicaid and private payors may not
be willing to provide reimbursement for our drugs, which would significantly reduce the likelihood of our products gaining market
acceptance.
We expect that private insurers will consider the efficacy,
cost-effectiveness, safety and tolerability of our product candidates in determining whether to approve reimbursement for such
product candidates and at what level. Obtaining these approvals can be a time consuming and expensive process. Our business, financial
condition and results of operations would be materially adversely affected if we do not receive approval for reimbursement of
our product candidates from private insurers on a timely or satisfactory basis. Limitations on coverage could also be imposed
at the local Medicare carrier level or by fiscal intermediaries. Medicare Part B, which covers medical insurance to Medicare patients
as discussed below, does not require participating insurance plans to cover all drugs that have been approved by the FDA. Our
business, financial condition and results of operations could be materially adversely affected if Part B medical insurance were
to limit access to, or deny or limit reimbursement of, our product candidates.
Reimbursement systems in international markets vary significantly
by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. In many countries, the product
candidate cannot be commercially launched until reimbursement is approved. In some foreign markets, prescription pharmaceutical
pricing remains subject to continuing governmental control even after initial approval is granted. The negotiation process in
some countries can exceed 12 months. To obtain reimbursement or pricing approval in some countries, we may be required to conduct
a clinical trial that compares the cost-effectiveness of our product candidates to other available therapies.
If the prices for our product candidates are reduced or if
governmental and other third-party payors do not provide adequate coverage and reimbursement of our drugs, our future revenue,
cash flows and prospects for profitability will suffer.
We are exposed to product liability, non-clinical and
clinical liability risks which could place a substantial financial burden upon us, should lawsuits be filed against us.
Our business exposes us to potential product liability and
other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical formulations and products.
In addition, the use in our anticipated clinical trials of pharmaceutical products and the subsequent sale of product candidates
by us, if approved, or our potential collaborators may cause us to bear a portion of or all product liability risks. A successful
liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition
and results of operations.
Because we do not currently have any clinical trials ongoing,
we do not currently carry product liability insurance. We anticipate obtaining such insurance upon initiation of our clinical
development activities; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in
adequate amounts. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated
adverse effects. A successful product liability claim or series of claims brought against us could adversely affect our results
of operations and business if judgments therewith exceed our insurance coverage.
If we fail to retain current members of our management,
or to attract and keep additional key personnel, we may be unable to successfully develop or commercialize our product candidates.
Our success depends on our continued ability to attract, retain
and motivate highly qualified management and scientific personnel. As of January 7, 2020,
we had nine full-time employees. We will rely primarily on outsourcing research, development and clinical trial activities, and
manufacturing operations, as well as other functions critical to our business. We believe this approach enhances our ability to
focus on our core product opportunities, allocate resources efficiently to different projects and allocate internal resources
more effectively. We have filled several key open positions and are currently recruiting for a few remaining positions. However,
competition for qualified personnel is intense. We may not be successful in attracting qualified personnel to fulfill our current
or future needs. In the event we are unable to fill critical open employment positions, we may need to delay our operational activities
and goals, including the development of our product candidates, and may have difficulty in meeting our obligations as a public
company. We do not maintain “key person” insurance on any of our employees.
In addition, competitors and others are likely in the future
to attempt to recruit our employees. The loss of the services of any of our key personnel, the inability to attract or retain
highly qualified personnel in the future or delays in hiring such personnel, particularly senior management and other technical
personnel, could materially and adversely affect our business, financial condition and results of operations. In addition, the
replacement of key personnel likely would involve significant time and costs, and may significantly delay or prevent the achievement
of our business objectives.
From time to time, our management seeks the advice and guidance
of certain scientific advisors and consultants regarding clinical and regulatory development programs and other customary matters.
These scientific advisors and consultants are not our employees and may have commitments to, or consulting or advisory contracts
with, other entities that may limit their availability to us. In addition, our scientific advisors may have arrangements with
other companies to assist those companies in developing products or technologies that may compete with us.
We will need to increase the size of our organization
and may not successfully manage our growth.
We are a preclinical-stage pharmaceutical company with a small
number of employees, and our management systems currently in place are not likely to be adequate to support our future growth
plans. Our ability to grow and to manage our growth effectively will require us to hire, train, retain, manage and motivate additional
employees and to implement and improve our operational, financial and management systems. These demands also may require the hiring
of additional senior management personnel or the development of additional expertise by our senior management personnel. Hiring
a significant number of additional employees, particularly those at the management level, would increase our expenses significantly.
Moreover, if we fail to expand and enhance our operational, financial and management systems in conjunction with our potential
future growth, such failure could have a material adverse effect on our business, financial condition and results of operations.
Because our Chief Executive Officer is involved with
several unaffiliated privately-held companies, he may experience conflicts of interest and competing demands for his time and
attention.
Dietrich Stephan, Ph.D., our Chief Executive Officer, is a
member of the governing bodies of several unaffiliated privately-held companies, as well as a general partner of Cyto Ventures.
Although Dr. Stephan expects to devote substantially all of his time to us, he expects to continue in each of these positions
for the foreseeable future. Conflicts of interest could arise with respect to business opportunities that could be advantageous
to third party organizations affiliated with Dr. Stephan, on the one hand, and us, on the other hand.
The majority of our current management lacks public company
experience, which could put us at greater risk of incurring fines or regulatory actions for failure to comply with federal securities
laws and could put us at a competitive disadvantage and require our management to devote additional time and resources to ensure
compliance with applicable corporate governance requirements.
The majority of our current executive management do not have
experience in managing and operating a public company, which could have an adverse effect on our ability to quickly respond to
problems or adequately address issues and matters applicable to public companies. Any failure to comply with federal securities
laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business,
financial condition and results of operations. Further, since certain of our current executive officers do not have experience
managing and operating a public company, we may need to dedicate additional time and resources to comply with legally mandated
corporate governance policies relative to our competitors whose management teams have more public company experience.
We rely significantly on information technology and any
failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our
ability to operate our business effectively.
Despite the implementation of security measures, our internal
computer systems and those of third parties with which we contract are vulnerable to damage from cyber-attacks, computer viruses,
unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents
or security breaches could cause interruptions in our operations, and could result in a material disruption of our drug development
and preclinical and clinical activities and business operations, in addition to possibly requiring substantial expenditures of
resources to remedy. The loss of drug development or clinical trial data could result in delays in our regulatory approval efforts
and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were
to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information,
we could incur liability and our development programs and the development of our product candidates could be delayed.
Our employees, consultants, third-party vendors and collaborators
may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee, consultant, third-party
vendor or collaborator fraud or other misconduct. Misconduct by our employees, consultants, third-party vendors or collaborators
could include, among other things, intentional failures to comply with FDA regulations, provide accurate information to the FDA,
comply with manufacturing standards, comply with federal and state healthcare fraud and abuse laws and regulations, report financial
information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements
in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and
other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and
promotion, sales commissions, customer incentive programs and other business arrangements. Employee, consultant, vendor or collaborator
misconduct also could involve the improper use of information obtained in the course of preclinical or clinical trials, which
could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter such
misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged
risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be
in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending
ourselves or asserting our rights, those actions could have a material adverse effect on our business, financial condition and
results of operations, and result in the imposition of significant fines or other sanctions against us.
Business disruptions such as natural disasters could
seriously harm our future revenues and financial condition and increase our costs and expenses.
We and our suppliers may experience a disruption in our and
their business as a result of natural disasters. A significant natural disaster, such as an earthquake, hurricane, flood or fire,
could severely damage or destroy our headquarters or facilities or the facilities of our manufacturers or suppliers, which could
have a material and adverse effect on our business, financial condition and results of operations. In addition, terrorist acts
or acts of war targeted at the U.S., and specifically the Pittsburgh, Pennsylvania and greater New York, New York regions, could
cause damage or disruption to us, our employees, facilities, partners and suppliers, which could have a material adverse effect
on our business, financial condition and results of operations.
We may engage in strategic transactions that could impact
our liquidity, increase our expenses and present significant distractions to our management.
From time to time, we may consider strategic transactions,
such as spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments.
Additional potential transactions that we may consider include a variety of different business arrangements, including acquisitions
of companies, asset purchases and out-licensing or in-licensing of products, product candidates or technologies. Any such transaction
may require us to incur non-recurring or other charges, may increase our near- and long-term expenditures and may pose significant
integration challenges or disrupt our management or business, which could adversely affect our business, financial condition and
results of operations. For example, these transactions may entail numerous operational and financial risks, including:
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exposure to unknown liabilities;
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disruption of our business and diversion of our management’s time and attention in order
to develop acquired products, product candidates or technologies;
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incurrence of substantial debt or dilutive issuances of equity securities to pay for any of these
transactions;
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higher-than-expected transaction and integration costs;
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write-downs of assets or goodwill or impairment charges;
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increased amortization expenses;
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difficulty and cost in combining the operations and personnel of any acquired businesses or product
lines with our operations and personnel;
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impairment of relationships with key suppliers or customers of any acquired businesses or product
lines due to changes in management and ownership; and
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inability to retain key employees of any acquired businesses.
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Accordingly, although there can be no assurance that we will
undertake or successfully complete any transactions of the nature described above, any transactions that we do complete may be
subject to the foregoing or other risks, and could have a material adverse effect on our business, financial condition and results
of operations.
The estimates and judgments we make, or the assumptions
on which we rely, in preparing our financial statements could prove inaccurate.
Our financial statements have been prepared in accordance with
U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported
amounts of our assets, liabilities, revenues and expenses, the amounts of charges accrued by us and related disclosure of contingent
assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. We cannot assure, however, that our estimates, or the assumptions underlying them, will not
change over time or otherwise prove inaccurate. For example, our estimates as they relate to anticipated timelines and milestones
for our preclinical development or clinical trials may prove to be inaccurate. If this is the case, we may be required to restate
our financial statements, which could, in turn, subject us to securities class action litigation or regulatory investigation or
action. Defending against such potential litigation or regulatory action relating to a restatement of our financial statements
would be expensive and would require significant attention and resources of our management. Moreover, our insurance to cover our
obligations with respect to the ultimate resolution of any such litigation or regulatory action may be inadequate. As a result
of these factors, any such potential litigation or regulatory action could have a material adverse effect on our financial results
or harm our business.
We may be unable to sell or otherwise monetize, the assets
and technologies of the Company as conducted prior to the completion of the Merger, in which case we may be required to take write-downs,
write-offs and impairment or other charges associated with the carrying values of such assets. Any such charges could negatively
affect our business, assets, liabilities, prospects, outlook, financial condition and results of operations.
Previously, Ohr acquired the SKS Ocular 1 LLC sustained release
technology, which was designed to develop best in class drug formulations for ocular disease (the “SKS Assets”) and
the exclusive rights to an animal model for dry macular degeneration and rights to produce and use carboxyethylpyrrole (“CEP”)
for research, clinical and commercial applications (the “CEP Assets”). In September 2019, we terminated the licenses
for the SKS Assets and the CEP Assets, as there would be substantial costs associated with continuing to maintain such assets
and attempts to monetize such assets would be a distraction to our management and other employees and an inefficient use of their
time. Our management and board of directors continue to evaluate whether to further pursue monetizing the remaining assets associated
with our pre-Merger activities, including selling, discontinuing or adjusting such assets. There can be no assurance, however,
that we will be successful at such efforts or sell or otherwise monetize such assets on acceptable terms, if at all. We may be
required to take write-offs or write-downs, and impairment or other charges associated with classifying such remaining assets
as held-for-sale and recording the carrying values of such assets at fair market value. As a result, we may be forced to write-down
or write-off such assets, in some cases completely, or incur impairment or other charges that could negatively affect our business,
assets, liabilities, prospects, outlook, financial condition and results of operations.
We have determined that our accounting treatment and
valuation of consideration pertaining to the license of our PATrOL™ technology should be modified. This change
in accounting treatment has required us to adjust our financial statements and will likely result in adjustments of our previously
reported financial statements. If we identify errors in our financial reporting in the future, we may be required to restate previously
reported financial statements and any such restatement may subject us to regulatory penalties and could cause investors to lose
confidence in the accuracy and completeness of our financial statements, which could cause the price of our common stock to decline.
In connection with the preparation of our financial statements,
our management and the audit committee of our board of directors determined that our accounting treatment and valuations pertaining
to the PATrOL™ technology license should be modified. This change in accounting treatment resulted in an increase in total
operating expenses of approximately $0.9 million on our Consolidated Statements of Operations and a decrease in intangible assets
of approximately $1.5 million on our Consolidated Balance Sheet. In connection with the valuation adjustments to the PATrOL™
technology license, we also determined that valuations pertaining to certain share-based awards should also be adjusted. This
change in valuation to share-based awards resulted in a decrease in total operating expenses of approximately $0.3 million on
our Consolidated Statements of Operations. This change in accounting treatment will likely lead to adjustments of our previously
reported financial statements. If we are required to restate any of our financial statements in the future, we may be subject
to regulatory penalties and investors could lose confidence in the accuracy and completeness of our financial statements, which
could cause our share price to decline.
Risks Related to Our Intellectual Property
We may not be successful in obtaining or maintaining
necessary rights to our product candidates through acquisitions and in-licenses.
Because several of our programs currently require the use of
proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to maintain and
exploit these proprietary rights. In addition, we may need to acquire or in-license additional intellectual property in the future.
We may be unable to acquire or in-license any compositions, methods of use, processes or other intellectual property rights from
third parties that we identify as necessary for our product candidates. We face competition with regard to acquiring and in-licensing
third-party intellectual property rights, including from a number of more established companies. These established companies may
have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization
capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license intellectual property
rights to us. We also may be unable to acquire or in-license third-party intellectual property rights on terms that would allow
it to make an appropriate return on our investment, and we may not be able to market products or perform research and development
or other activities covered by these patents.
We may enter into collaboration agreements with U.S. and foreign
academic institutions to accelerate development of our current or future preclinical product candidates. Typically, these agreements
include an option for the company to negotiate a license to the institution’s intellectual property rights resulting from
the collaboration. Even with such an option, we may be unable to negotiate a license within the specified timeframe or under terms
that are acceptable to us. If we are unable to license rights from a collaborating institution, the institution may offer the
intellectual property rights to other parties, potentially blocking our ability to pursue our desired program.
If we are unable to successfully obtain required third-party
intellectual property rights or maintain our existing intellectual property rights, we may need to abandon development of the
related program and our business, financial condition and results of operations could be materially and adversely affected.
If we fail to comply with our obligations in the agreements
under which we in-license intellectual property and other rights from third parties or otherwise experiences disruptions to our
business relationships with our licensors, we could lose intellectual property rights that are important to our business.
Our license agreement with CMU (the “CMU License Agreement”),
as the licensor (the “Licensor”), is important to our business, and we expect to enter into additional license agreements
in the future. The CMU License Agreement imposes, and we expect that future license agreements will impose, various royalties,
sublicensing fees and other obligations on us. If we fail to comply with our obligations under these agreements, or if we file
for bankruptcy, we may be required to make certain payments to the Licensor, we may lose the exclusivity of our license, or the
Licensor may have the right to terminate the license, in which event we would not be able to develop or market products covered
by the license. Additionally, the royalties and other payments associated with these licenses could materially and adversely affect
our business, financial condition and results of operations.
Pursuant to the terms of the CMU License Agreement, the Licensor
has the right to terminate the CMU License Agreement with respect to the program licensed under certain circumstances, including,
but not limited to: (i) if we do not pay amounts when due and within the applicable cure periods or (ii) if we file or have filed
against us a petition in bankruptcy or makes an assignment for the benefit of creditors. In the event the CMU License Agreement
is terminated by the Licensor, all licenses (or, in the determination of the Licensor, the exclusivity of such licenses) granted
to us by the Licensor will terminate immediately.
In some cases, patent prosecution of our licensed technology
may be controlled solely by the licensor. If our licensor fails to obtain and maintain patent or other protection for the proprietary
intellectual property we in-license, then we could lose our rights to the intellectual property or our exclusivity with respect
to those rights, and our competitors could market competing products using the intellectual property. In certain cases, we may
control the prosecution of patents resulting from licensed technology. In the event we breach any of our obligations related to
such prosecution, we may incur significant liability to our licensing partners. Licensing of intellectual property is of critical
importance to our business and involves complex legal, business and scientific issues. Disputes may arise regarding intellectual
property subject to a licensing agreement, including, but not limited to:
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the scope of rights granted under the license agreement and
other interpretation-related issues;
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the extent to which our technology and processes infringe on intellectual
property of the licensor that is not subject to the licensing agreement;
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the sublicensing of patent and other rights;
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our diligence obligations under the license agreement and what activities
satisfy those diligence obligations;
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the ownership of inventions and know-how resulting from the joint creation
or use of intellectual property by our licensors and us and our collaborators; and
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the priority of invention of patented technology.
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If disputes over intellectual property and other rights that
we have in-licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be
unable to successfully develop and commercialize the affected product candidates. If we fail to comply with any such obligations
to our licensor, such licensor may terminate their licenses to us, in which case we would not be able to market products covered
by these licenses. The loss of our licenses would have a material adverse effect on our business, financial condition and results
of operations.
We may be required to pay royalties and sublicensing
fees pursuant to the CMU License Agreement, which could adversely affect the overall profitability for us of any product candidates
that we may seek to commercialize.
Under the terms of the CMU License Agreement, we will be required
to pay royalties on future worldwide net product sales and a percentage of sublicensing fees that we may earn. These royalty payments
and sublicensing fees could adversely affect the overall profitability for us of any product candidates that we may seek to commercialize.
We may not be able to protect our proprietary or licensed
technology in the marketplace.
We depend on our ability to protect our proprietary or licensed
technology. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements
with employees and third parties, all of which offer only limited protection. Our success depends in large part on our ability
and any licensor’s or licensee’s ability to obtain and maintain patent protection in the U.S. and other countries
with respect to our proprietary or licensed technology and product candidates. We currently in-license some of our intellectual
property rights to develop our product candidates and may in-license additional intellectual property rights in the future. We
cannot be certain that patent enforcement activities by our current or future licensors have been or will be conducted in compliance
with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights. We
also cannot be certain that our current or future licensors will allocate sufficient resources or prioritize their or our enforcement
of such patents. Even if we are not a party to these legal actions, an adverse outcome could prevent us from continuing to license
intellectual property that we may need to operate our business, which would have a material adverse effect on our business, financial
condition and results of operations.
We believe we will be able to obtain, through prosecution of
patent applications covering our owned technology and technology licensed from others, adequate patent protection for our proprietary
drug technology, including those related to our in-licensed intellectual property. If we are compelled to spend significant time
and money protecting or enforcing our licensed patents and future patents we may own, designing around patents held by others
or licensing or acquiring, potentially for large fees, patents or other proprietary rights held by others, our business, financial
condition and results of operations may be materially and adversely affected. If we are unable to effectively protect the intellectual
property that we own or in-license, other companies may be able to offer the same or similar products for sale, which could materially
adversely affect our business, financial condition and results of operations. The patents of others from whom we may license technology,
and any future patents we may own, may be challenged, narrowed, invalidated or circumvented, which could limit our ability to
stop competitors from marketing the same or similar products or limit the length of term of patent protection that we may have
for our products.
Obtaining and maintaining patent protection depends on
compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies,
and our patent protection for licensed patents, licensed pending patent applications and potential future patent applications
and patents could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various
other governmental fees on patents and/or patent applications will be due to be paid to the U.S. Patent and Trademark Office (“USPTO”)
and various governmental patent agencies outside of the U.S. in several stages over the lifetime of the applicable patent and/or
patent application. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural,
documentary, fee payment and other similar provisions during the patent application process. In many cases, an inadvertent lapse
can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations
in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete
loss of patent rights in the relevant jurisdiction. If this occurs with respect to our in-licensed patents or patent applications
we may file in the future, our competitors might be able to use our technologies, which would have a material adverse effect on
our business, financial condition and results of operations.
The patent positions of pharmaceutical products are often complex
and uncertain. The breadth of claims allowed in pharmaceutical patents in the U.S. and many jurisdictions outside of the U.S.
is not consistent. For example, in many jurisdictions, the support standards for pharmaceutical patents are becoming increasingly
strict. Some countries prohibit method of treatment claims in patents. Changes in either the patent laws or interpretations of
patent laws in the U.S. and other countries may diminish the value of our licensed or owned intellectual property or create uncertainty.
In addition, publication of information related to our current product candidates and potential products may prevent us from obtaining
or enforcing patents relating to these product candidates and potential products, including without limitation composition-of-matter
patents, which are generally believed to offer the strongest patent protection.
Patents that we currently licenses and patents that we may
own or license in the future do not necessarily ensure the protection of our licensed or owned intellectual property for a number
of reasons, including, without limitation, the following:
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the patents may not be broad or strong enough to prevent competition
from other products that are identical or similar to our product candidates;
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there can be no assurance that the term of a patent can be extended under
the provisions of patent term extensions afforded by U.S. law or similar provisions in foreign countries, where available;
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the issued patents and patents that we may obtain or license in the future
may not prevent generic entry into the market for our product candidates;
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we, or third parties from whom we in-license or may license patents, may
be required to disclaim part of the term of one or more patents;
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there may be prior art of which we are not aware that may affect the validity
or enforceability of a patent claim;
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there may be prior art of which we are aware, which we do not believe affects
the validity or enforceability of a patent claim, but which, nonetheless, ultimately may be found to affect the validity or
enforceability of a patent claim;
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there may be other patents issued to others that will affect our freedom
to operate;
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if the patents are challenged, a court could determine that they are invalid
or unenforceable;
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there might be a significant change in the law that governs patentability,
validity and infringement of our licensed patents or any future patents we may own that adversely affects the scope of our
patent rights;
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a court could determine that a competitor’s technology or product
does not infringe our licensed patents or any future patents we may own; and
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the patents could irretrievably lapse due to failure to pay fees or otherwise
comply with regulations or could be subject to compulsory licensing.
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If we encounter delays in our development or clinical trials,
the period of time during which we could market our potential products under patent protection would be reduced.
Our competitors may be able to circumvent our licensed patents
or future patents we may own by developing similar or alternative technologies or products in a non-infringing manner. Our competitors
may seek to market generic versions of any approved products by submitting abbreviated new drug applications to the FDA in which
our competitors claim that our licensed patents or any future patents we may own are invalid, unenforceable or not infringed.
Alternatively, our competitors may seek approval to market their own products similar to or otherwise competitive with our product
candidates. In these circumstances, we may need to defend or assert our licensed patents or any future patents we may own, including
by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction
may find our licensed patents or any future patents we may own invalid or unenforceable. We may also fail to identify patentable
aspects of our research and development before it is too late to obtain patent protection. Even if we own or in-license valid
and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to
achieve our business objectives.
The issuance of a patent is not conclusive as to its inventorship,
scope, ownership, priority, validity or enforceability. In this regard, third parties may challenge our licensed patents or any
future patents we may own in the courts or patent offices in the U.S. and abroad. Such challenges may result in loss of exclusivity
or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could
limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration
of the patent protection of our technology and potential products. In addition, given the amount of time required for the development,
testing and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly
after such product candidates are commercialized.
We may infringe the intellectual property rights of others,
which may prevent or delay our drug development efforts and prevent us from commercializing or increase the costs of commercializing
our product candidates.
Our commercial success depends significantly on our ability
to operate without infringing the patents and other intellectual property rights of third parties. For example, there could be
issued patents of which we are not aware that our current or potential future product candidates infringe. There also could be
patents that we believe we do not infringe, but that we may ultimately be found to infringe. We have licensed intellectual property
from CMU under the CMU License Agreement, and prior generation intellectual property was licensed to other entities. Such intellectual
property, in conjunction with further developed technologies for gene editing therapies using such intellectual property, may
overlap with our own intellectual property.
Furthermore, because the nucleic acid therapeutics intellectual
property landscape is still evolving and our product candidates have not been through clinical trials or commercialized, it is
difficult to conclusively assess our freedom to operate without infringing third party rights. There are numerous companies that
have pending patent applications and issued patents directed to certain aspects of nucleic acid therapeutics. We are aware of
third party competitors in the oligonucleotide therapeutics space, whose patent filings and/or issued patents may include claims
directed to targets and/or products related to some of our programs. It is possible that at the time that we commercialize our
products these third-party patent portfolios may include issued patent claims that cover our product candidates or critical features
of their production or use. Our competitive position may suffer if patents issued to third parties or other third party intellectual
property rights cover, or may be alleged to cover, our product candidates or elements thereof, or methods of manufacture or use
relevant to our development plans. In such cases, we may not be in a position to develop or commercialize product candidates unless
we successfully pursue litigation to nullify or invalidate the third party intellectual property right concerned or enter into
a license agreement with the intellectual property right holder, if available on commercially reasonable terms.
Moreover, patent applications are in some cases maintained
in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially
later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take
many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents
that our product candidates or potential products infringe. For example, pending applications may exist that claim or can be amended
to claim subject matter that our product candidates or potential products infringe. Competitors may file continuing patent applications
claiming priority to already issued patents in the form of continuation, divisional, or continuation-in-part applications, in
order to maintain the pendency of a patent family and attempt to cover our product candidates.
Third parties may assert that we are employing their proprietary
technology without authorization and may sue us for patent or other intellectual property infringement. These lawsuits are costly
and could adversely affect our business, financial condition and results of operations and divert the attention of managerial
and scientific personnel. If we are sued for patent infringement, we would need to demonstrate that our product candidates, potential
products or methods either do not infringe the claims of the relevant patent or that the patent claims are invalid, and we may
not be able to do this. Proving invalidity is difficult. For example, in the U.S., proving invalidity requires a showing of clear
and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these
proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted
in pursuing these proceedings, which could have a material adverse effect on us. In addition, we may not have sufficient resources
to bring these actions to a successful conclusion. If a court holds that any third-party patents are valid, enforceable and cover
our products or their use, the holders of any of these patents may be able to block our ability to commercialize our products
unless it acquires or obtains a license under the applicable patents or until the patents expire.
We may not be able to enter into licensing arrangements or
make other arrangements at a reasonable cost or on reasonable terms. Any inability to secure licenses or alternative technology
could result in delays in the introduction of our product candidates or lead to prohibition of the manufacture or sale of products
by us. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies
licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product candidate.
In addition, in any such proceeding or litigation, we could be found liable for monetary damages, including treble damages and
attorneys’ fees, if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing
our product candidates or force us to cease some of our business operations, which could materially and adversely affect our business,
financial condition and results of operations. Any claims by third parties that we have misappropriated their confidential information
or trade secrets could have a similar material and adverse effect on our business, financial condition and results of operations.
In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse
effect on our ability to raise the funds necessary to continue our operations.
Our
product candidates may also require specific formulations to work effectively and efficiently. These formulations may be covered
by intellectual property rights held by others. We may develop products containing our compounds and pre-existing pharmaceutical
compounds. These pharmaceutical compounds may be covered by intellectual property rights held by others. We may be required by
the FDA or comparable foreign regulatory authorities to provide a companion diagnostic test or tests with our product candidates.
These diagnostic test or tests may be covered by intellectual property rights held by others. We may be unable to acquire or in-license
any relevant third-party intellectual property rights that we identify as necessary or important to our business operations.
We,
or our licensors, may not be able to detect infringement against our owned or in-licensed patents, as the case may be, which may
be especially difficult for manufacturing processes or formulation patents. Even if we or our licensors detect infringement by
a third party of our owned or in-licensed patents, we or our licensors, as the case may be, may choose not to pursue litigation
against or settlement with the third party. If we, or our licensors, later sue such third party for patent infringement, the third
party may have certain legal defenses available to it, which otherwise would not be available except for the delay between when
the infringement was first detected and when the suit was brought. Such legal defenses may make it impossible for us or our licensors
to enforce our owned or in-licensed patents, as the case may be, against such third party.
Any claims or lawsuits relating to infringement of intellectual
property rights brought by or against us will be costly and time consuming and may adversely affect our business, financial condition
and results of operations.
We may be required to initiate litigation to enforce or defend
our licensed and owned intellectual property. Lawsuits to protect our intellectual property rights can be very time consuming
and costly. There is a substantial amount of litigation involving patent and other intellectual property rights in the pharmaceutical
industry generally. Such litigation or proceedings could substantially increase our operating expenses and reduce the resources
available for development activities or any future sales, marketing or distribution activities.
In any infringement litigation, any award of monetary damages
we receive may not be commercially valuable. Furthermore, because of the substantial amount of discovery required in connection
with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure
during litigation. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue
such infringement claims, which typically last for years before they are resolved. Further, any claims we assert against a perceived
infringer could provoke these parties to assert counterclaims against us alleging that we have infringed their patents. Some of
our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their
greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings
could have a material adverse effect on our ability to compete in the marketplace.
In addition, our licensed patents and patent applications,
and patents and patent applications that we may apply for, own or license in the future, could face other challenges, such as
interference proceedings, opposition proceedings, re-examination proceedings and other forms of post-grant review. Any of these
challenges, if successful, could result in the invalidation of, or in a narrowing of the scope of, any of our licensed patents
and patent applications and patents and patent applications that we may apply for, own or license in the future subject to challenge.
Any of these challenges, regardless of their success, would likely be time-consuming and expensive to defend and resolve and would
divert our management and scientific personnel’s time and attention.
Changes in U.S. patent law could diminish the value of
patents in general, thereby impairing our ability to protect our product candidates or potential products.
As is the case with other pharmaceutical companies, our success
is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry
involves both technological and legal complexity and is costly, time-consuming and inherently uncertain. For example, the U.S.
previously enacted and is currently implementing wide-ranging patent reform legislation. Specifically, on September 16, 2011,
the Leahy-Smith America Invents Act (the “Leahy-Smith Act”) was signed into law and included a number of significant
changes to U.S. patent law, and many of the provisions became effective in March 2013. However, it may take the courts years to
interpret the provisions of the Leahy-Smith Act, and the implementation of the statute could increase the uncertainties and costs
surrounding the prosecution of our licensed and future patent applications and the enforcement or defense of our licensed and
future patents, all of which could have a material adverse effect on our business, financial condition and results of operations.
In addition, the U.S. Supreme Court has ruled on several patent
cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights
of patent owners in certain situations. The recent decision by the U.S. Supreme Court in Association for Molecular Pathology
v. Myriad Genetics, Inc. precludes a claim to a nucleic acid having a stated nucleotide sequence which is identical to a sequence
found in nature and unmodified. We are currently not aware of an immediate impact of this decision on our patents or patent applications
which contain modifications that we believe are not found in nature. However, this decision has yet to be clearly interpreted
by courts and by the USPTO. We cannot make assurances that the interpretations of this decision or subsequent rulings will not
adversely impact our patents or patent applications. In addition to increasing uncertainty with regard to our ability to obtain
patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained.
Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could
change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we might obtain in
the future.
We may not be able to protect our intellectual property
rights throughout the world.
Filing, prosecuting and defending patents on product candidates
throughout the world would be prohibitively expensive. Competitors may use our licensed and owned technologies in jurisdictions
where we have not licensed or obtained patent protection to develop their own products and, further, may export otherwise infringing
products to territories where we may obtain or license patent protection, but where patent enforcement is not as strong as that
in the U.S. These products may compete with our product candidates in jurisdictions where we do not have any issued or licensed
patents, and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them
from so competing.
Many companies have encountered significant problems in protecting
and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain
developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating
to pharmaceuticals, which could make it difficult for us to stop the infringement of our licensed patents and future patents we
may own, or marketing of competing products in violation of our proprietary rights generally. Further, the laws of some foreign
countries do not protect proprietary rights to the same extent or in the same manner as the laws of the U.S. As a result, we may
encounter significant problems in protecting and defending our licensed and owned intellectual property both in the U.S. and abroad.
For example, China currently affords less protection to a company’s intellectual property than some other jurisdictions.
As such, the lack of strong patent and other intellectual property protection in China may significantly increase our vulnerability
regarding unauthorized disclosure or use of our intellectual property and undermine our competitive position. Proceedings to enforce
our future patent rights, if any, in foreign jurisdictions could result in substantial cost and divert our efforts and attention
from other aspects of our business.
We may be unable to adequately prevent disclosure of
trade secrets and other proprietary information.
In order to protect our proprietary and licensed technology
and processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, manufacturers,
outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure
of our confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential
information. In addition, others may independently discover our trade secrets and proprietary information. Failure to obtain or
maintain trade secret protection could adversely affect our competitive business position.
We may be subject to claims that our employees, consultants
or independent contractors have wrongfully used or disclosed confidential information of third parties.
We expect to employ individuals who were previously employed
at other pharmaceutical companies. Although we have no knowledge of any such claims against us, we may be subject to claims that
us or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information
of our employees’ former employers or other third parties. Litigation may be necessary to defend against these claims. There
is no guarantee of success in defending these claims, and even if we are successful, litigation could result in substantial cost
and be a distraction to our management and other employees.
We may be subject to claims challenging the inventorship
of our licensed patents, any future patents we may own and other intellectual property.
Although we are not currently experiencing any claims challenging
the inventorship of our licensed patents or our licensed or owned intellectual property, we may in the future be subject to claims
that former employees, collaborators or other third parties have an interest in our licensed patents or other licensed or owned
intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations
of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against
these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property.
Such an outcome could have a material adverse effect on our business, financial condition and results of operations. Even if we
are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management
and other employees.
If we do not obtain additional protection under the Hatch-Waxman
Amendments and similar foreign legislation extending the terms of our licensed patents and any future patents we may own, our
business, financial condition and results of operations may be materially and adversely affected.
Depending upon the timing, duration and specifics of FDA regulatory
approval for our product candidates, one or more of our licensed U.S. patents or future U.S. patents that we may license or own
may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984,
referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as
compensation for patent term lost during drug development and the FDA regulatory review process. This period is generally one-half
the time between the effective date of an IND (falling after issuance of the patent) and the submission date of a New Drug Application
(“NDA”), plus the time between the submission date of an NDA and the approval of that application. Patent term restorations,
however, cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval by the FDA.
The application for patent term extension is subject to approval
by the USPTO, in conjunction with the FDA. It takes at least six months to obtain approval of the application for patent term
extension. We may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to
apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable
time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension
or restoration or the term of any such extension is less than we request, the period during which we will have the right to exclusively
market our product will be shortened and our competitors may obtain earlier approval of competing products, and our ability to
generate revenues could be materially adversely affected.
Risks Related to Government Regulation
We are very early in our development efforts. All of
our product candidates are still in preclinical development. If we are unable to advance our product candidates to clinical development,
obtain regulatory approval and ultimately commercialize our product candidates or experience significant delays in doing so, our
business will be materially harmed.
We are very early in our development efforts, and all of our
product candidates are still in preclinical development. We have invested substantially all of our efforts and financial resources
in the identification and preclinical development of antisense oligonucleotide therapies (“ASOs”), including the development
program for the treatment of Huntington’s Disease. Our ability to generate product revenues, which it does not expect will
occur for many years, if ever, will depend on the successful development and eventual commercialization of our product candidates,
which may never occur. We currently generate no revenue from sales of any products, and we may never be able to develop or commercialize
a marketable product. In addition, certain of our product candidate development programs contemplate the development of companion
diagnostics, which are assays or tests to identify an appropriate patient population. Companion diagnostics are subject to regulation
as medical devices and must themselves be approved for marketing by the FDA or certain other foreign regulatory agencies before
we may commercialize our product candidates. The success of our product candidates will depend on several factors, including the
following:
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successful completion of preclinical studies;
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approval of INDs for our planned clinical trials or future clinical trials;
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successful enrollment in, and completion of, clinical trials;
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successful development of companion diagnostics for use with certain of
our product candidates;
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receipt of regulatory approvals from applicable regulatory authorities;
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establishing commercial manufacturing capabilities or making arrangements
with third-party manufacturers for clinical supply and commercial manufacturing;
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obtaining and maintaining patent and trade secret protection or regulatory
exclusivity for our product candidates;
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launching commercial sales of our product candidates, if and when approved,
whether alone or in collaboration with others;
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acceptance of the product candidates, if and when approved,
by patients, the medical community and third-party payors;
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effectively competing with other therapies;
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obtaining and maintaining third-party insurance coverage and adequate reimbursement;
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enforcing and defending intellectual property rights and claims; and
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maintaining a continued acceptable safety profile of the product candidates
following approval, if approved.
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If we do not achieve one or more of these factors in a timely
manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates,
which would materially harm our business. If we do not receive regulatory approvals for our product candidates, we may not be
able to continue our operations.
Furthermore, the FDA has relatively limited experience with
nucleic acid therapeutics, particularly PNAs, which may increase the complexity, uncertainty and length of the regulatory review
process for our product candidates. To date, the FDA has approved few nucleic acid therapeutics for marketing and commercialization,
and the FDA and our foreign counterparts have not yet established any definitive policies, practices or guidelines specifically
in relation to these drugs. The lack of policies, practices or guidelines specific to nucleic acid therapeutics may hinder or
slow review by the FDA of any regulatory filings that we may submit. Moreover, the FDA may respond to these submissions by defining
requirements we may not have anticipated. Such responses could lead to significant delays in the development of our product candidates.
In addition, because there may be approved treatments for some of the diseases for which we may seek approval, in order to receive
regulatory approval, we may need to demonstrate through clinical trials that the product candidates we develop to treat these
diseases, if any, are not only safe and effective, but safer or more effective than existing products. Furthermore, in recent
years, there has been increased public and political pressure on the FDA with respect to the approval process for new drugs, and
the FDA’s standards, especially regarding drug safety, appear to have become more stringent. As a result of the foregoing
factors, we may never receive regulatory approval to market and commercialize any product candidate.
Preclinical and clinical trials are expensive, time-consuming
and difficult to design and implement, and involve uncertain outcomes. Furthermore, results of earlier preclinical studies and
clinical trials may not be predictive of results of future preclinical studies or clinical trials.
All of our product candidates are still in the preclinical
stage, and their risk of failure is high. Before we can commence clinical trials for a product candidate, we must complete extensive
preclinical testing and studies that support our planned INDs in the U.S., or similar applications in other jurisdictions. We
cannot be certain of the timely completion or outcome of our preclinical testing and studies and cannot predict if the FDA or
other regulatory authorities will accept our proposed clinical programs or if the outcome of our preclinical testing and studies
will ultimately support the further development of our programs. It is also impossible to predict when or if any of our product
candidates will complete clinical trials evaluating their safety and effectiveness in humans or will receive regulatory approval.
To obtain the requisite regulatory approvals to market and sell any of our product candidates, we must demonstrate through extensive
preclinical studies and clinical trials that our PATrOL™ platform and product candidates are safe and effective in humans
for use in each target indication. To date, we have never advanced a product candidate into a clinical trial. Preclinical and
clinical testing is expensive and can take many years to complete, and the outcome is inherently uncertain. Failure can occur
at any time during the preclinical or clinical trial process. Our preclinical programs may experience delays or may never advance
to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these programs on
a timely basis or at all, which would have an adverse effect on our business, financial condition and results of operations.
Additionally, the results of preclinical studies and future
clinical trials of product candidates may not be predictive of the results of later-stage clinical trials. Product candidates
in later stages of clinical trials may fail to show the desired safety and efficacy results despite having progressed through
preclinical studies and initial clinical trials. Many companies in the pharmaceutical industry have suffered significant setbacks
in advanced clinical trials due to adverse safety profiles or lack of efficacy, notwithstanding promising results in earlier studies.
Similarly, our future clinical trial results may not be successful for these or other reasons.
This product candidate development risk is heightened by any
changes in the anticipated clinical trials compared to the completed clinical trials. As product candidates are developed from
preclinical through early to late stage clinical trials towards approval and commercialization, it is customary that various aspects
of the development program, such as manufacturing and methods of administration, are altered along the way in an effort to optimize
processes and results. While these types of changes are common and are intended to optimize the product candidates for late stage
clinical trials, approval and commercialization, such changes carry the risk that they will not achieve these intended objectives.
Any of these changes could make the results of our anticipated
clinical trials or other future clinical trials we may initiate less predictable and could cause our product candidates to perform
differently, including causing toxicities, which could delay completion of our clinical trials, delay approval of our product
candidates, and/or jeopardize our ability to commence product sales and generate revenues.
We may rely on third parties to conduct investigator-sponsored
clinical trials of our product candidates. Any failure by a third party to meet our obligations with respect to the clinical development
of our product candidates may delay or impair our ability to obtain regulatory approval for other product candidates.
We may rely on academic and private non-academic institutions
to conduct and sponsor preclinical and clinical trials relating to our product candidates. We will not control the design or conduct
of the investigator-sponsored trials, and it is possible that the FDA or non-U.S. regulatory authorities will not view these investigator-sponsored
trials as providing adequate support for future preclinical and clinical trials, whether controlled by us or third parties, for
any one or more reasons, including elements of the design or execution of the trials or safety concerns or other trial results.
For example, we collaborate with, and rely on, academic centers to conduct preclinical and non-investigator-sponsored research
and it is possible that the interests of such academic centers may not be aligned with our interests.
Such arrangements will likely provide us certain information
rights with respect to the investigator-sponsored trials, including access to and the ability to use and reference the data, including
for our own regulatory filings, resulting from the investigator-sponsored trials. However, we would not have control over the
timing and reporting of the data from investigator-sponsored trials, nor would we own the data from the investigator-sponsored
trials. If we are unable to confirm or replicate the results from the investigator-sponsored trials or if negative results are
obtained, we would likely be further delayed or prevented from advancing further clinical development of our product candidates.
Further, if investigators or institutions breach their obligations with respect to the clinical development of our product candidates,
or if the data proves to be inadequate compared to the first-hand knowledge we might have gained had the investigator-sponsored
trials been sponsored and conducted by us, then our ability to design and conduct any future preclinical or clinical trials ourselves
may be adversely affected.
Additionally, the FDA or non-U.S. regulatory authorities may
disagree with the sufficiency of our right of reference to the preclinical, manufacturing or clinical data generated by these
investigator-sponsored trials, or our interpretation of preclinical, manufacturing or clinical data from these investigator-sponsored
trials. If so, the FDA or other non-U.S. regulatory authorities may require us to obtain and submit additional preclinical, manufacturing,
or clinical data before we may initiate our anticipated trials and/or may not accept such additional data as adequate to initiate
our anticipated trials.
Our product candidates may cause undesirable side effects
that could delay or prevent their regulatory approval or commercialization or have other significant adverse implications on our
business, financial condition and results of operations.
Undesirable side effects observed in preclinical studies or
in clinical trials with our product candidates could interrupt, delay or halt their development and could result in the denial
of regulatory approval by the FDA, the EMA or comparable foreign authorities for any or all targeted indications or adversely
affect the marketability of any product candidates developed using our PATrOL™ platform that receive regulatory approval.
In turn, this could eliminate or limit our ability to commercialize our product candidates.
Our product candidates may exhibit adverse effects in preclinical
toxicology studies and adverse interactions with other drugs. There are also risks associated with additional requirements the
FDA, the EMA or comparable foreign authorities may impose for marketing approval with regard to a particular disease.
Our product candidates may require a risk management program
that could include patient and healthcare provider education, usage guidelines, appropriate promotional activities, a post-marketing
observational study and ongoing safety and reporting mechanisms, among other requirements. Prescribing could be limited to physician
specialists or physicians trained in the use of the drug, or could be limited to a more restricted patient population. Any risk
management program required for approval of our product candidates could potentially have an adverse effect on our business, financial
condition and results of operations.
Undesirable side effects involving our product candidates may
have other significant adverse implications on our business, financial condition and results of operations. For example:
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we may be unable to obtain additional financing on acceptable terms, if at all;
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our collaborators may terminate any development agreements covering these
product candidates;
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if any development agreements are terminated, we may determine not to further
develop the affected product candidates due to resource constraints and may not be able to establish additional collaborations
for their further development on acceptable terms, if at all;
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if we were to later continue the development of these product candidates
and receive regulatory approval, earlier findings may significantly limit their marketability and thus significantly lower
our potential future revenues from their commercialization;
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we may be subject to product liability or stockholder litigation; and
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we may be unable to attract and retain key employees.
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In addition, if any of our product candidates receive marketing
approval and we or others later identify undesirable side effects caused by the product:
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regulatory authorities may withdraw their approval of the PATrOL™
platform and the product, or we or our partners may decide to cease marketing and sale of the product voluntarily;
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we may be required to change the way the product is administered, conduct
additional preclinical studies or additional clinical trials after initial clinical trials regarding the product, change the
labeling of the product, or change the product’s manufacturing facilities; and
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our reputation may suffer.
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Any of these events could prevent us from achieving or maintaining
market acceptance of the affected product and could substantially increase the costs and expenses of commercializing the product,
which in turn could delay or prevent us from generating significant revenues from the sale of the product.
Delays in the commencement or completion of clinical
trials could result in increased costs to us and delay our ability to establish strategic collaborations.
Delays in the commencement or completion of clinical trials
could significantly impact our drug development costs. We do not know whether anticipated clinical trials will begin on time or
be completed on schedule, if at all. The commencement of clinical trials can be delayed for a variety of reasons, including, but
not limited to, delays related to:
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obtaining regulatory approval to commence one or more clinical trials;
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reaching agreement on acceptable terms with prospective third-party contract
research organizations (“CROs”) and clinical trial sites;
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manufacturing sufficient quantities of a product candidate or other materials
necessary to conduct clinical trials;
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obtaining institutional review board approval to conduct one or more clinical
trials at a prospective site;
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recruiting and enrolling patients to participate in one or more clinical
trials; and
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the failure of our collaborators to adequately resource our product candidates
due to their focus on other programs or as a result of general market conditions.
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In addition, once a clinical trial has begun, it may be suspended
or terminated by us, our collaborators, the institutional review boards or data safety monitoring boards charged with overseeing
our clinical trials, the FDA, the EMA or comparable foreign authorities due to a number of factors, including:
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failure to conduct the clinical trial in accordance with regulatory requirements
or clinical protocols;
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inspection of the clinical trial operations or clinical trial site by the
FDA, the EMA or comparable foreign authorities resulting in the imposition of a clinical hold;
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unforeseen safety issues;
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lack of adequate funding to continue the clinical trials; and
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lack of patient enrollment in clinical studies.
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If we experience delays in the completion or termination of
any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability
to commence product sales and generate product revenues from any of our product candidates will be delayed. In addition, any delays
in completing our clinical trials will increase our costs and slow down our product candidate development and approval process.
Delays in completing our clinical trials could also allow our competitors to obtain marketing approval before we do or shorten
the patent protection period during which we may have the exclusive right to commercialize our product candidates. Any of these
occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause,
or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory
approval of our product candidates.
If we experience delays in the enrollment of patients
in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials
for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these
trials as required by the FDA or other regulatory authorities. Patient enrollment, a significant factor in the timing of clinical
trials, is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical
sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’
and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies,
including any new drugs that may be approved for the indications we are investigating.
If we fail to enroll and maintain the number of patients for
which the clinical trial was designed, the statistical power of that clinical trial may be reduced, which would make it harder
to demonstrate that the product candidate being tested in such clinical trial is safe and effective. Additionally, enrollment
delays in our clinical trials may result in increased development costs for our product candidates, which would cause our value
to decline and limit our ability to obtain additional financing. Our inability to enroll a sufficient number of patients for any
of our future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether.
We intend to rely on third parties to conduct our preclinical
studies and clinical trials and perform other tasks. If these third parties do not successfully carry out their contractual duties,
meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize
our product candidates and our business, financial condition and results of operations could be substantially harmed.
We intend to rely upon third-party CROs, medical institutions,
clinical investigators and contract laboratories to monitor and manage data for our ongoing preclinical and anticipated clinical
programs. Nevertheless, we maintain responsibility for ensuring that each of our preclinical studies are, and anticipated clinical
studies will be, conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and our reliance
on these third parties does not relieve the Company of our regulatory responsibilities. The Company and our CROs and other vendors
are required to comply with current requirements on cGMP, good clinical practices (“GCP”) and GLP, which are a collection
of laws and regulations enforced by the FDA, the EMA and comparable foreign authorities for all of our product candidates in clinical
development. Regulatory authorities enforce these regulations through periodic inspections of preclinical study and clinical trial
sponsors, principal investigators, preclinical study and clinical trial sites, and other contractors. If we or any of our CROs
or vendors fails to comply with applicable regulations, the data generated in our preclinical studies and clinical trials may
be deemed unreliable and the FDA, the EMA or comparable foreign authorities may require us to perform additional preclinical studies
and clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory
authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition,
our clinical trials must be conducted with products produced consistent with cGMP regulations. Our failure to comply with these
regulations may require it to repeat clinical trials, which would delay the development and regulatory approval processes.
We may also not be able to enter into arrangements with CROs
on commercially reasonable terms, or at all. In addition, our CROs will not be our employees, and except for remedies available
to us under our agreements with such CROs, we will not be able to control whether or not they devote sufficient time and resources
to our ongoing preclinical and clinical programs. If CROs do not successfully carry out their contractual duties or obligations
or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due
to the failure to adhere to our protocols, regulatory requirements, or for other reasons, our clinical trials may be extended,
delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates.
CROs may also generate higher costs than anticipated. As a result, our business, financial condition and results of operations
and the commercial prospects for our product candidates could be materially and adversely affected, our costs could increase,
and our ability to generate revenue could be delayed.
Switching or adding additional CROs, medical institutions,
clinical investigators or contract laboratories involves additional cost and requires management time and focus. In addition,
there is a natural transition period when a new CRO commences work replacing a previous CRO. As a result, delays occur, which
can materially impact our ability to meet our desired development timelines. There can be no assurance that we will not encounter
similar challenges or delays in the future or that these delays or challenges will not have a material adverse effect on our business,
financial condition or results of operations.
Our product candidates are subject to extensive regulation
under the FDA, the EMA or comparable foreign authorities, which can be costly and time consuming, cause unanticipated delays or
prevent the receipt of the required approvals to commercialize our product candidates.
The clinical development, manufacturing, labeling, storage,
record-keeping, advertising, promotion, export, marketing and distribution of our product candidates are subject to extensive
regulation by the FDA and other U.S. regulatory agencies, the EMA or comparable authorities in foreign markets. In the U.S., neither
us nor our collaborators are permitted to market our product candidates until we or our collaborators receive approval of an NDA
from the FDA or receive similar approvals abroad. The process of obtaining these approvals is expensive, often takes many years,
and can vary substantially based upon the type, complexity and novelty of the product candidates involved. Approval policies or
regulations may change and may be influenced by the results of other similar or competitive products, making it more difficult
for us to achieve such approval in a timely manner or at all. Any guidance that may result from recent FDA advisory panel discussions
may make it more expensive to develop and commercialize such product candidates. In addition, as a company, we have not previously
filed NDAs with the FDA or filed similar applications with other foreign regulatory agencies. This lack of experience may impede
our ability to obtain FDA or other foreign regulatory agency approval in a timely manner, if at all, for our product candidates
for which development and commercialization is our responsibility.
Despite the time and expense invested, regulatory approval
is never guaranteed. The FDA, the EMA or comparable foreign authorities can delay, limit or deny approval of a product candidate
for many reasons, including:
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a product candidate may not be deemed safe or effective;
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agency officials of the FDA, the EMA or comparable foreign authorities
may not find the data from non-clinical or preclinical studies and clinical trials generated during development to be sufficient;
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the FDA, the EMA or comparable foreign authorities may not approve our
third-party manufacturers’ processes or facilities; or
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the FDA, the EMA or a comparable foreign authority may change our approval
policies or adopt new regulations.
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Our inability to obtain these approvals would prevent us from
commercializing our product candidates.
The FDA, the NIH and the EMA have demonstrated caution
in their regulation of gene therapy treatments, and ethical and legal concerns about gene therapy and genetic testing may result
in additional regulations or restrictions on the development and commercialization of our product candidates, which may be difficult
to predict.
The FDA, National Institutes of Health (“NIH”)
and the EMA have each expressed interest in further regulating biotechnology, including gene therapy and genetic testing. For
example, the EMA advocates a risk-based approach to the development of a gene therapy product. Agencies at both the federal and
state level in the United States, as well as U.S. congressional committees and other governments or governing agencies, have also
expressed interest in further regulating the biotechnology industry. Such action may delay or prevent commercialization of some
or all of our product candidates.
Regulatory requirements in the U.S. and in other jurisdictions
governing gene therapy products have changed frequently and may continue to change in the future. The FDA established the Office
of Cellular, Tissue and Gene Therapies within its Center for Biologics Evaluation and Research to consolidate the review of gene
therapy and related products, and established the Cellular, Tissue and Gene Therapies Advisory Committee to advise this review.
Prior to submitting an IND, our human clinical trials will be subject to review by the NIH Office of Biotechnology Activities
(“OBA”) Recombinant DNA Advisory Committee (the “RAC”). Following an initial review, RAC members make
a recommendation as to whether the protocol raises important scientific, safety, medical, ethical or social issues that warrant
in-depth discussion at the RAC’s quarterly meetings. Even though the FDA decides whether individual gene therapy protocols
may proceed under an IND, the RAC’s recommendations are shared with the FDA and the RAC public review process, if undertaken,
can delay the initiation of a clinical trial, even if the FDA has reviewed the trial design and details and has not objected to
its initiation or has notified the sponsor that the study may begin. Conversely, the FDA can put an IND on a clinical hold even
if the RAC has provided a favorable review or has recommended against an in-depth, public review. Moreover, under guidelines published
by the NIH, patient enrollment in our future gene silencing clinical trials cannot begin until the investigator for such clinical
trial has received a letter from the OBA indicating that the RAC review process has been completed; and Institutional Biosafety
Committee (“IBC”) approval as well as all other applicable regulatory authorizations have been obtained. In addition
to the government regulators, the IBC and IRB of each institution at which we will conduct clinical trials of our product candidates,
or a central IRB if appropriate, would need to review the proposed clinical trial to assess the safety of the trial. In addition,
adverse developments in clinical trials of gene therapy products conducted by others may cause the FDA or other oversight bodies
to change the requirements for approval of any of our product candidates. Similarly, the EMA governs the development of gene therapies
in the European Union and may issue new guidelines concerning the development and marketing authorization for gene therapy products
and require that we comply with these new guidelines. These regulatory review agencies and committees and the new requirements
or guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies or trials,
increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization
of our product candidates or lead to significant post-approval limitations or restrictions. As we advance our product candidates,
we will be required to consult with these regulatory agencies and committees and comply with applicable requirements and guidelines.
If we fail to do so, we may be required to delay or discontinue development of such product candidates. These additional processes
may result in a review and approval process that is longer than we otherwise would have expected. Delays as a result of an increased
or lengthier regulatory approval process or further restrictions on the development of our product candidates can be costly and
could negatively impact our or our collaborators’ ability to complete clinical trials and commercialize our current and
future product candidates in a timely manner, if at all.
Even if our product candidates receive regulatory approval
in the U.S., it may never receive approval or commercialize our products outside of the U.S.
In order to market any products outside of the U.S., we must
establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval
procedures vary among countries and can involve additional product testing and additional administrative review periods. The time
required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval
process in other countries may include all of the risks detailed above regarding FDA approval in the U.S. as well as other risks.
Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory
approval in one country may have a negative effect on the regulatory process in others. Failure to obtain regulatory approval
in other countries or any delay seeking or obtaining such approval would impair our ability to develop foreign markets for our
product candidates.
Even if any of our product candidates receive regulatory
approval, our product candidates may still face future development and regulatory difficulties.
If any of our product candidates receive regulatory approval,
the FDA, the EMA or comparable foreign authorities may still impose significant restrictions on the indicated uses or marketing
of the product candidates or impose ongoing requirements for potentially costly post-approval studies and trials. In addition,
regulatory agencies subject a product, our manufacturer and the manufacturer’s facilities to continual review and periodic
inspections. If a regulatory agency discovers previously unknown problems with a product, including adverse events of unanticipated
severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions
on that product, our collaborators or us, including requiring withdrawal of the product from the market. Our product candidates
will also be subject to ongoing FDA, EMA or comparable foreign authorities’ requirements for the labeling, packaging, storage,
advertising, promotion, record-keeping and submission of safety and other post-market information on the drug. If our product
candidates fail to comply with applicable regulatory requirements, a regulatory agency may:
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issue warning letters or other notices of possible violations;
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impose civil or criminal penalties or fines or seek disgorgement of revenue
or profits;
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suspend any ongoing clinical trials;
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refuse to approve pending applications or supplements to approved applications
filed by us or our collaborators;
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withdraw any regulatory approvals;
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impose restrictions on operations, including costly new manufacturing requirements,
or shut down our manufacturing operations; or
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seize or detain products or require a product recall.
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The FDA, the EMA and comparable foreign authorities actively
enforce the laws and regulations prohibiting the promotion of off-label uses.
The FDA, the EMA and comparable foreign authorities strictly
regulate the promotional claims that may be made about prescription products, such as our product candidates, if approved. In
particular, a product may not be promoted for uses that are not approved by the FDA, the EMA or comparable foreign authorities
as reflected in the product’s approved labeling. If we receive marketing approval for our product candidates for our proposed
indications, physicians may nevertheless use our products for their patients in a manner that is inconsistent with the approved
label, if the physicians personally believe in their professional medical judgment that our products could be used in such manner.
However, if we are found to have promoted our product candidates, if approved, for any off-label uses, the federal government
could levy civil, criminal or administrative penalties, and seek fines against us. Such enforcement has become more common in
the industry. The FDA, the EMA or comparable foreign authorities could also request that we enter into a consent decree or a corporate
integrity agreement, or seek a permanent injunction against us under which specified promotional conduct is monitored, changed
or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to
significant liability, which would materially adversely affect our business, financial condition and results of operations.
We and our potential contract manufacturers are subject
to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we will
rely may not continue to meet regulatory requirements.
All entities involved in the preparation of therapeutics for
clinical trials or commercial sale, including our potential contract manufacturers for our product candidates, are subject to
extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical
trials must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures and the implementation
and operation of quality systems to control and assure the quality of investigational products and products approved for sale.
Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties
or stability of our product candidates that may not be detectable in final product testing. We or our potential contract manufacturers
must supply all necessary documentation in support of an NDA or marketing authorization application (“MAA”) on a timely
basis and must adhere to GLP and cGMP regulations enforced by the FDA, the EMA or comparable foreign authorities through their
facilities inspection program. Some of our potential contract manufacturers may not have produced a commercially approved pharmaceutical
product and therefore may not have obtained the requisite regulatory authority approvals to do so. The facilities and quality
systems of some or all of our potential third-party contractors must pass a pre-approval inspection for compliance with the applicable
regulations as a condition of regulatory approval of our product candidates or any of our other potential product candidates.
In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation
of our product candidates or the associated quality systems for compliance with the regulations applicable to the activities being
conducted. Although we plan to oversee the contract manufacturers, we cannot control the manufacturing process of, and will be
completely dependent on, our contract manufacturing partners for compliance with applicable regulatory requirements. If these
facilities do not pass a pre-approval plant inspection, regulatory approval of the product candidates may not be granted or may
be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever.
The regulatory authorities also may, at any time following
approval of a product for sale, audit the manufacturing facilities of our potential third-party contractors. If any such inspection
or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable
regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures
that may be costly or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension
of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed
upon us or third parties with whom we may contract could materially harm our business, financial condition and results of operations.
If we or any of our potential third-party manufacturers fail
to maintain regulatory compliance, the FDA, the EMA or comparable foreign authorities can impose regulatory sanctions including,
among other things, refusal to approve a pending application for a product candidate, withdrawal of an approval, or suspension
of production. As a result, our business, financial condition and results of operations may be materially and adversely affected.
Additionally, if supply from one manufacturer is interrupted,
an alternative manufacturer would need to be qualified through an NDA supplement or MAA variation, or equivalent foreign regulatory
filing, which could result in further delay. The regulatory agencies may also require additional studies or trials if a new manufacturer
is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay
in our desired clinical and commercial timelines.
These factors could cause us to incur higher costs and could
cause the delay or termination of clinical trials, regulatory submissions, required approvals, or commercialization of our product
candidates. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement
suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential
revenue.
Current and future legislation may increase the difficulty
and cost of commercializing our product candidates and may affect the prices we may obtain if our product candidates are approved
for commercialization.
In the U.S. and some foreign jurisdictions, there have been
a number of adopted and proposed legislative and regulatory changes regarding the healthcare system that could prevent or delay
regulatory approval of our product candidates, restrict or regulate post-marketing activities and affect our ability to profitably
sell any of our product candidates for which we obtain regulatory approval.
In the U.S., the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (“MMA”) changed the way Medicare covers and pays for pharmaceutical products. Cost reduction
initiatives and other provisions of this legislation could limit the coverage and reimbursement rate that we receive for any of
our approved product candidates. While the MMA only applies to drug benefits for Medicare beneficiaries, private payors often
follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in
reimbursement that results from the MMA may result in a similar reduction in payments from private payors.
In March 2010, the Patient Protection and Affordable Care Act,
as amended by the Health Care and Education Reconciliation Act of 2010 (collectively the “ACA”), was enacted. The
ACA was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies
against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new
taxes and fees on the health industry and impose additional health policy reforms. The ACA increased manufacturers’ rebate
liability under the Medicaid Drug Rebate Program by increasing the minimum rebate amount for both branded and generic drugs and
revised the definition of “average manufacturer price” (“AMP”), which may also increase the amount of
Medicaid drug rebates manufacturers are required to pay to states. The legislation also expanded Medicaid drug rebates and created
an alternative rebate formula for certain new formulations of certain existing products that is intended to increase the rebates
due on those drugs. The Centers for Medicare & Medicaid Services, which administers the Medicaid Drug Rebate Program, also
has proposed to expand Medicaid rebates to the utilization that occurs in the territories of the U.S., such as Puerto Rico and
the Virgin Islands. Further, beginning in 2011, the ACA imposed a significant annual fee on companies that manufacture or import
branded prescription drug products. Legislative and regulatory proposals have been introduced at both the state and federal level
to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products.
There have been recent public announcements by members of the
U.S. Congress, President Trump and his administration regarding their plans to repeal and replace the ACA and Medicare. For example,
on December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017, which, among other things, eliminated
the individual mandate requiring most Americans (other than those who qualify for a hardship exemption) to carry a minimum level
of health coverage, effective January 1, 2019. We are not sure whether additional legislative changes will be enacted, or whether
the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals
of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process
may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing
approval testing and other requirements.
Additionally, there has been heightened governmental scrutiny
in the U.S. of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny
has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among
other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs,
and reform government program reimbursement methodologies for products. At the federal level, the Trump administration’s
budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget
process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price
of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing
for generic drugs for low-income patients. Further, the Trump administration released a “Blueprint,” or plan, to lower
drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase drug manufacturer competition,
increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their
products, and reduce the out of pocket costs of drug products paid by consumers. The U.S. Department of Health and Human Services
has already started the process of soliciting feedback on some of these measures and, at the same, is immediately implementing
others under its existing authority. While some proposed measures will require authorization through additional legislation to
become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or
administrative measures to control drug costs. At the state level, legislatures are increasingly passing legislation and implementing
regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints,
discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases,
designed to encourage importation from other countries and bulk purchasing.
We expect that these and other healthcare reform measures that
may be adopted in the future may result in more rigorous coverage criteria and in additional downward pressure on the price that
we receive for any approved drug. Any reduction in reimbursement from Medicare or other government programs may result in a similar
reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent
us from being able to generate revenue, attain profitability or commercialize our drugs.
In Europe, the United Kingdom has indicated its intent to withdraw
from the European Union in the future. A significant portion of the regulatory framework in the United Kingdom is derived from
the regulations of the European Union. We cannot predict what consequences the withdrawal of the United Kingdom from the European
Union, if it occurs, might have on the regulatory frameworks of the United Kingdom or the European Union, or on our future operations,
if any, in these jurisdictions.
Changes in government funding for the FDA and other government
agencies could hinder their ability to hire and retain key leadership and other personnel, properly administer drug innovation,
or prevent our product candidates from being developed or commercialized, which could negatively impact our business, financial
condition and results of operations.
The ability of the FDA to review and approve new products can
be affected by a variety of factors, including budget and funding levels, ability to hire and retain key personnel, and statutory,
regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government
funding of other agencies that fund research and development activities is subject to the political process, which is inherently
fluid and unpredictable.
In December 2016, the 21st Century Cures Act was signed into
law. This new legislation is designed to advance medical innovation and empower the FDA with the authority to directly hire positions
related to drug and device development and review. However, government proposals to reduce or eliminate budgetary deficits may
include reduced allocations to the FDA and other related government agencies. These budgetary pressures may result in a reduced
ability by the FDA to perform their respective roles; including the related impact to academic institutions and research laboratories
whose funding is fully or partially dependent on both the level and timing of funding from government sources.
Disruptions at the FDA and other agencies may also slow the
time necessary for our product candidates to be reviewed or approved by necessary government agencies, which could adversely affect
our business, financial condition and results of operations.
We are subject to “fraud and abuse” and similar
laws and regulations, and a failure to comply with such regulations or prevail in any litigation related to noncompliance could
harm our business, financial condition and results of operations.
In the U.S., we are subject to various federal and state healthcare
“fraud and abuse” laws, including anti-kickback laws, false claims laws and other laws intended, among other things,
to reduce fraud and abuse in federal and state healthcare programs. The federal Anti-Kickback Statute makes it illegal for any
person, including a prescription drug manufacturer, or a party acting on its behalf, to knowingly and willfully solicit, receive,
offer or pay any remuneration that is intended to induce the referral of business, including the purchase, order or prescription
of a particular drug, or other good or service for which payment in whole or in part may be made under a federal healthcare program,
such as Medicare or Medicaid. Although we seek to structure our business arrangements in compliance with all applicable requirements,
these laws are broadly written, and it is often difficult to determine precisely how the law will be applied in specific circumstances.
Accordingly, it is possible that our practices may be challenged under the federal Anti-Kickback Statute.
The federal False Claims Act prohibits anyone from, among other
things, knowingly presenting or causing to be presented for payment to the government, including the federal healthcare programs,
claims for reimbursed drugs or services that are false or fraudulent, claims for items or services that were not provided as claimed,
or claims for medically unnecessary items or services. Under the Health Insurance Portability and Accountability Act of 1996,
we are prohibited from knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private
payors, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious
or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services to obtain money
or property of any healthcare benefit program. Violations of fraud and abuse laws may be punishable by criminal or civil sanctions,
including penalties, fines or exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid
and debarment from contracting with the U.S. government. In addition, private individuals have the ability to bring actions on
behalf of the government under the federal False Claims Act as well as under the false claims laws of several states.
Many states have adopted laws similar to the federal Anti-Kickback
Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not just governmental
payors. In addition, some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of
Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers or the Pharmaceutical Research and Manufacturers
of America’s Code on Interactions with Healthcare Professionals. Several states also impose other marketing restrictions
or require pharmaceutical companies to make marketing or price disclosures to the state. There are ambiguities as to what is required
to comply with these state requirements and if we fail to comply with an applicable state law requirement, we could be subject
to penalties.
Neither the government nor the courts have provided definitive
guidance on the application of fraud and abuse laws to our business. Law enforcement authorities are increasingly focused on enforcing
these laws, and it is possible that some of our practices may be challenged under these laws. Efforts to ensure that our business
arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. If
we are found in violation of one of these laws, we could be subject to significant civil, criminal and administrative penalties,
damages, fines, exclusion from governmental funded federal or state healthcare programs and the curtailment or restructuring of
our operations. If this occurs, our business, financial condition and results of operations may be materially adversely affected.
If we face allegations of noncompliance with the law
and encounter sanctions, our reputation, revenues and liquidity may suffer, and any of our product candidates that are ultimately
approved for commercialization could be subject to restrictions or withdrawal from the market.
Any government investigation of alleged violations of law could
require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply
with ongoing regulatory requirements may significantly and adversely affect our ability to generate revenues from any of our product
candidates that are ultimately approved for commercialization. If regulatory sanctions are applied or if regulatory approval is
withdrawn, our business, financial condition and results of operations will be adversely affected. Additionally, if we are unable
to generate revenues from product sales, our potential for achieving profitability will be diminished and our need to raise capital
to fund our operations will increase.
Risks Related to Our Common Stock
The market price of our common stock is expected to be
volatile
The trading price of our stock is likely to be volatile. Our
stock price could be subject to wide fluctuations in response to a variety of factors, including the following:
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our ability to conduct and achieve positive outcomes from our preclinical activities on the PATrOL™
platform and disease specific programs;
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results from, and any delays in, anticipated in-vitro or in-vivo preclinical
studies;
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contracting with third parties such as academic institutions, and various
CROs who will perform such studies, or the potential lack of performance of such organizations;
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acceptance of INDs by the FDA or similar regulatory filing by comparable
foreign regulatory authorities for the conduct of clinical trials of our product candidates and our proposed design of future
clinical trials;
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clinical testing is expensive and can take many years to complete, and
its outcome is inherently uncertain, so failure can occur at any time during the clinical trial process;
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delays in publications of research findings;
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significant lawsuits, including patent or stockholder litigation;
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inability to obtain additional funding or funding on favorable terms;
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failure to successfully develop and commercialize our product candidates;
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changes in laws or regulations applicable to our product candidates;
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inability to obtain adequate product supply for our product candidates,
or the inability to do so at acceptable prices or in an acceptable timeframe;
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unanticipated serious safety concerns related to our PATrOL™ platform
or any of our product candidates;
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adverse regulatory decisions;
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introduction of new products or technologies by our competitors;
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adverse events or results for our competitors or our product candidate
target areas that could generally adversely affect us our or our industry;
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failure to meet or exceed drug development or financial projections we
provide to the public;
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failure to meet or exceed the estimates, expectations and projections of
the investment community and our stockholders;
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the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment
community;
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announcements of significant acquisitions, strategic partnerships, joint
ventures or capital commitments by us or our competitors;
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disputes or other developments relating to proprietary rights, including
patents, litigation matters and our ability to obtain patent protection for our licensed and owned technologies;
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additions or departures of key scientific or management personnel;
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changes in the market valuations of similar companies;
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general economic and market conditions and overall fluctuations in the
U.S. equity market;
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sales of our common stock by us or our stockholders in the future;
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trading volume of our common stock;
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period-to-period fluctuations in our financial results;
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material weakness in our internal control over financial reporting, which,
while we believe we have taken appropriate steps to remediate such material weakness, there can be no assurance that the steps
we are taking will be sufficient to remediate our material weakness or prevent future material weaknesses or significant deficiencies
from occurring;
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changes in the structure of health care payments;
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changes in the Nasdaq listing of our stock; and
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recommendations of equity analysts covering our stock.
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In addition, the stock market, and equity values of small pharmaceutical
companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our
common stock, regardless of our actual operating performance. Further, a decline in the financial markets and related factors
beyond our control may cause our stock price to decline rapidly and unexpectedly.
In the past, following periods of volatility in the market
price of a company’s securities, stockholders have often instituted class action securities litigation against those companies.
Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could
significantly harm our profitability and reputation.
In connection with the preparation of our financial statements,
our management and the audit committee of our board of directors determined that our accounting treatment and valuations pertaining
to the PATrOL™ technology license should be modified. This change in accounting treatment resulted in an increase in total
operating expenses of approximately $0.9 million on our Consolidated Statements of Operations and a decrease in intangible assets
of approximately $1.5 million on our Consolidated Balance Sheet. In connection with the valuation adjustments to the PATrOL™
technology license, we also determined that valuations pertaining to certain share-based awards should also be adjusted. This
change in valuation to share-based awards resulted in a decrease in total operating expenses of approximately $0.3 million on
our Consolidated Statements of Operations. If we are required to restate any of our financial statements in the future due to
our inability to adequately remedy the issues that gave rise to these modifications or for any other reason, we may be subject
to regulatory penalties and investors could lose confidence in the accuracy and completeness of our financial statements, which
could cause our share price to decline.
Our management owns a significant percentage of our stock
and is able to exert significant control over matters subject to stockholder approval.
Dr. Stephan, our President, Chief Executive Officer and a director
of us, holds a significant number of shares of our outstanding common stock and an option to purchase additional shares of common
stock. Accordingly, Dr. Stephan has the ability to influence us through his ownership position.
This significant concentration of stock ownership may adversely
affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with
controlling stockholders. As a result, Dr. Stephan could significantly influence all matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other business combination transactions. Dr. Stephan may be
able to determine all matters requiring stockholder approval. The interests of these stockholders may not always coincide with
our interests or the interests of other stockholders. This may also prevent or discourage unsolicited acquisition proposals or
offers for our common stock that you may feel are in your best interests as one of our stockholders, and he may act in a manner
that advances his best interests and not necessarily those of other stockholders, including seeking a premium value for his common
stock, and might affect the prevailing market price for our common stock.
Our internal control over financial reporting may not
meet the standards required by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal control
over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, could have a material adverse effect on our
business and share price.
Our management is required to report on the effectiveness of
our internal control over financial reporting. The rules governing the standards that must be met for our management to assess
our internal control over financial reporting are complex and require significant documentation, testing and possible remediation.
We expect that compliance with these rules and regulations will continue to substantially increase our legal and financial compliance
costs and will make some activities more time-consuming and costly, and our management and other personnel will devote a substantial
amount of time to these compliance requirements.
In connection with the implementation of the necessary procedures
and practices related to internal control over financial reporting, we may identify material weaknesses that we may not be able
to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404.
In addition, we may encounter problems or delays in completing the implementation of any improvements and receiving a favorable
attestation in connection with the attestation provided by our independent registered public accounting firm, if and when required.
Failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business,
financial condition and results of operations and could limit our ability to report our financial results accurately and in a
timely manner.
In connection with an evaluation of the effectiveness of our
disclosure controls and procedures, our chief executive officer (“CEO”) and chief financial officer (“CFO”)
concluded that our disclosure controls and procedures were not effective as of September 30, 2019 due to a material weakness in
our internal control over financial reporting due to a lack of expertise in complex accounting transactions. While our CEO and
CFO believe that this material weakness has likely been remedied because we hired a financial accounting consultant to provide
certain accounting advisory services, there can be no assurance that these steps will be sufficient to remediate our material
weakness or prevent future material weaknesses from occurring.
We may take advantage of specified reduced disclosure
requirements applicable to a “smaller reporting company” under Regulation S-K, and the information that we provide
to stockholders may be different than they might receive from other public companies.
We are a “smaller reporting company,” as defined
under Regulation S-K. As a smaller reporting company, we may take advantage of specified reduced disclosure and other requirements
that are otherwise applicable generally to public companies. These provisions include, among other things, scaled disclosure requirements,
including about our executive compensation arrangements.
We intend to continue to take advantage of certain of the scaled
disclosure requirements of smaller reporting companies. We may continue to take advantage of these allowances until we are no
longer a smaller reporting company. We will cease to be a smaller reporting company if we have (i) more than $250 million in market
value of our shares held by non-affiliates as of the last business day of our second fiscal quarter or (ii) more than $100 million
of annual revenues in our most recent fiscal year completed before the last business day of our second fiscal quarter and a market
value of our shares held by non-affiliates more than $700 million as of the last business day of our second fiscal quarter. We
may choose to take advantage of some but not all of these scaled disclosure requirements. Therefore, the information that we provide
stockholders may be different than one might get from other public companies. Further, if some investors find our shares of common
stock less attractive as a result, there may be a less active trading market for our shares of common stock and the market price
of such shares of common stock may be more volatile.
If securities or industry analysts do not publish research,
or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline.
The trading market for our common stock depends, in part, on
the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts
who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely
decline. In addition, if our operating results fail to meet the forecast of analysts, our stock price would likely decline. If
one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could
decrease, which might cause our stock price and trading volume to decline.
Sales of a substantial number of shares of our common
stock in the public market by our stockholders, future issuances of our common stock or rights to purchase our common stock, could
cause our stock price to fall.
Sales of a substantial number of shares of our common stock
by our existing stockholders in the public market, or the perception that these sales might occur, could depress the market price
of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable
to predict the effect that such sales may have on the prevailing market price of our common stock.
Our amended and restated certificate of incorporation
provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States are the exclusive
forums for substantially all disputes between us and our stockholders other than actions arising under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended, which could limit our stockholders’ ability to obtain a
favorable judicial forum for disputes with us or our directors, officers, or employees.
Our amended and restated certificate of incorporation provides
that the Court of Chancery of the State of Delaware is the exclusive forum for:
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any derivative action or proceeding brought on our behalf;
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any action asserting a breach of fiduciary duty;
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any action asserting a claim against us arising under
the General Corporation Law of the State of Delaware (the “DGCL”), our amended and restated certificate of incorporation
or our amended and restated bylaws; and
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any action asserting a claim against us that is governed
by the internal-affairs doctrine.
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These exclusive-forum provisions do not apply to claims under
the Securities Act, the Exchange Act or any other claims for which the federal courts have exclusive jurisdiction.
These exclusive forum provisions may limit a stockholder’s
ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other
employees, which may discourage lawsuits against us and our directors, officers, and other employees. If a court were to find
either exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable
in an action, it may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm our
business.
We are subject to securities class action litigation
and derivative shareholder litigation. If an unfavorable ruling were to occur, there exists the possibility of a material adverse
impact on us.
On February 14, 2018, plaintiff, Jeevesh Khanna, commenced
an action in the Southern District of New York, against Ohr and several current and former officers and directors, alleging that
they violated federal securities laws between June 24, 2014 and January 4, 2018. On August 7, 2018, the lead plaintiffs, now George
Lehman and Insured Benefit Plans, Inc. filed an amended complaint, stating the class period to be April 8, 2014 through January
4, 2018. The plaintiffs did not quantify any alleged damages in their complaint but, in addition to attorneys’ fees and
costs, they seek to maintain the action as a class action and to recover damages on behalf of themselves and other persons who
purchased or otherwise acquired Ohr common stock during the putative class period and purportedly suffered financial harm as a
result. We and the individuals dispute these claims and intend to defend the matter vigorously. On September 17, 2018, Ohr filed
a motion to dismiss the complaint. On September 20, 2019, the Court entered an order granting the defendants’ motion to
dismiss. On October 23, 2019, the plaintiffs filed a notice of appeal of that order dismissing the action and other related orders
by the Court. Briefing on the appeal is currently scheduled for the first half of 2020. This litigation could result in substantial
costs and a diversion of management’s resources and attention, which could harm our business and the value of our common
stock.
On May 3, 2018, plaintiff Adele J. Barke, derivatively on behalf
of Ohr, commenced an action against certain former directors of Ohr, including Michael Ferguson, Orin Hirschman, Thomas M. Riedhammer,
June Almenoff and Jason S. Slakter in the Supreme Court, State of New York, alleging that the action was brought in the right
and for the benefit of Ohr seeking to remedy their “breach of fiduciary duties, corporate waste and unjust enrichment that
occurred between June 24, 2014 and the present.” It does not quantify any alleged damages. We and the individuals dispute
these claims and intend to defend the matter vigorously. Such litigation has been stayed pursuant to a stipulation by the parties,
which has been so ordered by the court, pending a decision in the Southern District case on the motion to dismiss, but that status
could change. This litigation could result in substantial costs and a diversion of management’s resources and attention,
which could harm our business and the value of our common stock.
On March 20, 2019, a putative class action lawsuit was filed
in the United States District Court for District of Delaware naming as defendants Ohr and its board of directors, Legacy NeuBase
and Ohr Acquisition Corp., captioned Wheby v. Ohr Pharmaceutical, Inc., et al., Case No. 1:19-cv-00541-UNA (the “Wheby
Action”). The plaintiffs in the Wheby Action allege that the preliminary joint proxy/prospectus statement filed by Ohr with
the SEC on March 8, 2019 contained false and misleading statements and omitted material information in violation of Section 14(a)
of the Exchange Act and SEC Rule 14a-9 promulgated thereunder, and further that the individual defendants are liable for those
alleged misstatements and omissions under Section 20(a) of the Exchange Act. The complaint in the Wheby Action has not been served
on, nor was service waived by, any of the named defendants in that action. The action seeks, among other things, to rescind
the Merger or an award of damages, and an award of attorneys’ and experts’ fees and expenses. The defendants dispute
the claims raised in the Wheby Action. Management believes that the likelihood of an adverse decision from the sole remaining
action is unlikely; however, the litigation could result in substantial costs and a diversion of management’s resources
and attention, which could harm our business and the value of our common stock.
Anti-takeover provisions in our charter documents and
under Delaware law could make an acquisition of the Company more difficult and may prevent attempts by our stockholders to replace
or remove our management.
Provisions in our amended and restated certificate of incorporation
and amended and restated bylaws may significantly reduce the value of shares of our common stock to a potential acquirer or delay
or prevent an acquisition or a change in management without the consent of our board of directors. The provisions in our amended
and restated certificate of incorporation and amended and restated bylaws include the following:
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a classified board of directors with three-year staggered terms, which may delay
the ability of stockholders to change the membership of a majority of our board of directors;
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no cumulative voting in the election of directors, which limits the ability
of minority stockholders to elect director candidates;
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the exclusive rights of our board of directors to establish the authorized
number of directors and to elect a director to fill a vacancy created by the expansion of our board of directors or the death,
resignation, disqualification, retirement or removal of a director, which prevents stockholders from being able to fill vacancies
on our board of directors;
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a provision that directors may be removed by our stockholders only for
cause;
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the ability of our board of directors to authorize the issuance of shares
of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without
stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
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the ability of our board of directors to make, alter or appeal our amended and
restated bylaws without obtaining stockholder approval;
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the affirmative vote of the holders of at least 66 2/3% of the voting power
of all of the then-outstanding shares of our capital stock entitled to vote generally in the election of directors is required
to amend, alter, repeal or adopt any provision inconsistent with, several of the provisions of our amended and restated certificate
of incorporation and amended and restated bylaws;
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a prohibition on stockholder action by written consent, which forces stockholder
action to be taken at an annual or special meeting of our stockholders;
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the requirement that a special meeting of stockholders may be called only
by our board of directors, chief executive officer or president, which may delay the ability of our stockholders to force
consideration of a proposal or to take action, including the removal of directors;
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a restriction on the forum for certain litigation against us to Delaware;
and
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advance notice procedures that stockholders must comply with in order to
nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which
may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate
of directors or otherwise attempting to obtain control of us.
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Although we believe these provisions collectively will provide
for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would
apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent
any attempts by our stockholders to replace or remove then current management by making it more difficult for stockholders to
replace members of the board of directors, which is responsible for appointing the members of management.
Certain provisions of the DGCL deter hostile takeovers. Specifically,
Section 203 of the DGCL prohibits a Delaware corporation from engaging in a business combination with an “interested stockholder”
for a period of three years following the date the person first became an interested stockholder, unless (with certain exceptions)
the business combination or the transaction by which the person became an interested stockholder is approved in a prescribed manner.
Generally, a “business combination” includes a merger, asset or stock sale, or certain other transactions resulting
in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together
with affiliates and associates, beneficially owns or within three years prior to becoming an “interested stockholder”
did own, 15% or more of a corporation’s outstanding voting stock. While this statute permits a corporation to opt out of
these protective provisions in its certificate of incorporation, our certificate of incorporation does not include any such opt-out
provision.
Claims for indemnification by our directors and officers
may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available
to us.
Our amended and restated certificate of incorporation provides
that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.
In addition, as permitted by Section 145 of the General Corporation
Law of the State of Delaware, or the DGCL, our amended and restated certificate of incorporation and our indemnification agreements
that we have entered into with our directors and officers provide that:
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We will indemnify our directors and officers for serving us in those capacities
or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides
that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable
cause to believe such person’s conduct was unlawful.
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We may, in our discretion, indemnify employees and agents in those circumstances
where indemnification is permitted by applicable law.
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We are required to advance expenses actually and reasonably incurred by our directors
and officers in connection with any proceeding, except that such directors or officers shall undertake to repay such advances
if it is ultimately determined by a court of competent jurisdiction that such person is not entitled to indemnification.
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We will not be obligated pursuant to our amended and restated certificate
of incorporation to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees,
except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification.
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The rights to indemnification conferred in our amended and restated certificate
of incorporation are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers,
employees and agents and to obtain insurance to indemnify such persons.
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We may not retroactively amend our amended and restated certificate of
incorporation provisions to reduce our indemnification obligations to current or former directors or officers.
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This indemnification policy could result in substantial expenditures
by us, which we will be unable to recover.
Our pre-Merger net operating loss carryforwards and certain
other tax attributes will likely be subject to limitations. The pre-Merger net operating loss carryforwards and certain other
tax attributes of us may also be subject to limitations as a result of ownership changes resulting from the Merger.
In general, a corporation that undergoes an “ownership
change,” as defined in Section 382 of the Internal Revenue Code of 1986, as amended, is subject to limitations on its ability
to utilize its pre-change net operating losses (“NOLs”) to offset future taxable income (the “Section 382 Limitation”).
Such an ownership change occurs if the aggregate stock ownership of certain stockholders, generally stockholders beneficially
owning five percent or more of a corporation’s common stock, applying certain look-through and aggregation rules, increases
by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period, generally
three years. Due to the ownership change of the Company upon completion of the Merger, our NOLs and certain other tax attributes
will be subject to the Section 382 Limitation. Consequently, even if we achieve profitability, we may not be able to utilize a
material portion of our NOLs and certain other tax attributes because of the Section 382 Limitation, which could have a material
adverse effect on cash flow and results of operations. As of September 30, 2019, we estimated that we had approximately $6.4 million
in NOL carryforwards. The company has not completed an analysis regarding the limitation of net operating loss carryforwards,
however, it is likely that the Section 382 Limitation will cause a significant portion of our NOL carryforwards to never be utilized.
In addition, if we are determined to have discontinued our historic business following the completion of the Merger, subject to
certain exceptions, the Section 382 Limitation could eliminate all possibility of utilizing our NOL carryforwards.
We may never pay dividends on our common stock so any
returns would be limited to the appreciation of our stock.
We currently anticipate that we will retain future earnings
for the development, operation and expansion of our business and do not anticipate we will declare or pay any cash dividends for
the foreseeable future. In addition, the terms of any future debt agreements may preclude us from paying dividends. Any return
to stockholders will therefore be limited to the appreciation of their stock.